Steel mills bombard buyers with cost-driven surcharges
By Tom Stundza -- Purchasing, 2/5/2004 2:00:00 AM
U.S. steel firms are trying to boost base prices for mill products by more than 40%. At the same time, they're trying to get buyers to pay for increased costs of energy, freight and such raw materials as scrap, coke and iron ore. News releases from the mills contend that, "unprecedented increases in the cost of raw materials to produce steel can no longer be absorbed through normal price changes."
While specialty steelmakers typically impose surcharges when alloying metal costs escalate, the last time carbon steel producers tried such a move—in the form of energy surcharges—was in 2001, and it wasn't successful.
World iron ore prices are set to rise 18.6% in the fiscal year starting April 1, but supplies are tight already because of high sales to China. Although overall steel demand hasn't really improved since late last year, supply of the metal—and some of its key components—are an issue. The weak dollar is keeping lower-priced foreign steel away. Also, domestic base prices appear to be increasing on the back of significant double ordering by service centers and such fabricators as tube mills—users who have seen orders canceled by some steelmakers who are having trouble getting coke. Coke is metallurgical coal that has been baked in the absence of air and is used as a source of carbon in blast furnaces that produce molten iron, the precursor of raw steel. U.S. Steel has been forced to reduce coke shipments following a fire at the Pinnacle (metallurgical coal) Mine near Pineville, W.Va., which supplies U.S. Steel's coke-making plant in Clairton, Pa. This reduced coke production from U.S. Steel has aggravated an already worldwide shortage of the material. (Adding to the coke situation is China's increasing demand for the material to feed its massive steelmaking operations.)
But the real marketplace issue revolves around steel scrap. The domestic companies have told service centers, steel processors, steel fabricators and small-to-medium tonnage direct-buy OEM customers that the surcharges are nonnegotiable. In turn, several steel processors are trying to add surcharges, as increased raw materials costs would eat away at their margins. A significant volume of scrap has been exported from North America to China this winter, reducing supply and triggering a rapid escalation of Midwest market prices. Shredded auto scrap in Chicago, for example, has risen 41% since September to $222/ gross ton in January. Industry insiders confirm that contract buyers such as the automakers have rejected the surcharges from U.S. mills while some other large-tonnage mill buyers have switched sourcing to Mexican mills and other foreign sources. Also, some buyers pointedly have told service centers they won't pay some or all of the surcharge fees; the distributors, in turn, are threatening to withhold deliveries if the fees aren't paid. "There certainly is a great deal of chaos going on in the steel industry," says Gregg Eisenberg, chief executive of Maverick Tube Corp., which expects to have to raise prices on its products as a result of the surcharges.
Scrap surcharge announcements
| Producer | Per ton | Effective date |
| *Surcharge level subject to negotiation. SOURCE: PURCHASING FROM INDUSTRY SOURCES |
||
| Ipsco | $20 | 1/1/2004 |
| Gallatin | $20 | 1/1/2004 |
| Weirton Steel | $25 | 12/15/03-1/31/04 |
| Nucor Steel | $20 | 1/1/2004 |
| AK Steel | $30 | 1/1/2004 |
| US Steel | $30 | 2/1/2004 |
| ISG | $30 | 1/19/2004 |
| Rouge | $20 | 1/1/2004 |
| NS/BMP | $15* | 2/1/2004 |
| Ispat/Inland | $30 | 2/1/2004 |
| Corus/Tuscaloosa | $30 | 1/5/2004 |
| WCI | $40 | 1/15/2004 |
| Wheeling-Pittsburgh | $30 | 1/7/2004 |
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