Business Survey commentaries from metals and resins buyers show they are very upset about rising prices, extended leadtimes and hints about allocations—because of reduced domestic production and imports—at a time when demand is improving very slowly. "Many raw materials prices (especially metals and resins) are increasing, supplies are tightening, leadtimes are stretching," according to the procurement manager at an industrial adhesives firm in Tennessee.

In fact, U.S. companies that buy sheet steel on the spot market are experiencing the steepest short-term price increase in the past 20 years. Many steel buyers say the new 30% tariffs have pushed prices up faster than they would have risen otherwise. Similarly, resin buyers say efforts of producers to shutter capacity and reduce price-depressing inventories have been too successful.

The buyer at a maker of auto-seat springs is paying 30% more for steel than before President Bush imposed import tariffs on March 5. Other buyers are paying 50% more than at the end of 2000. Spot price for benchmark hot-rolled sheet was $310-$320/ton in May, depending on producer, and had been $200-$210 in December. Meanwhile, sheet steel deliveries have gone to 16 weeks from six. ""Flat-rolled steel products are extremely tight. Leadtimes are expanding. Prices are rising rapidly," reports the purchasing manager for an automotive equipment manufacturer in Indiana. "And all this is happening while our business is steady but slower than normal."

Metals buyers also are upset that Tier II suppliers— such as the stamping houses, tubing mills and processing distributors—are being forced to pay at the high end of the new price ranges being charged by the mills or risk losing out on future deliveries. "Steel pricing is causing problems with my sheet metal fabricators who don't have long-term contracts in place with mill suppliers," says a purchasing manager for a plant controls producer in the Midwest. "Flat rolled steel of all types is in short supply and not available in some cases, while prices have increased $150/ton since January," says the director of purchasing for a steel tube mill in Pennsylvania. "This is going to make it difficult to maintain operations three months from now, if demand does not increase."

"Steel is in very short supply regardless of price," says the purchasing manager at a box spring manufacturing plant in the South. "We are having to source finished product offshore because domestic steel mills have, in effect, put our market on allocation. We would rather keep the business domestic, but have been forced to import due to the 30% tariffs that President Bush implemented." The steel buyer at an Illinois door manufacturer contends the president "sold out to get votes" from states with steel mills and hopes Bush "is watching what the steel industry is doing to steel consumers."

Supply of coated steel mill products "is far short of demand, so leadtimes are way out and prices have gone up 10% in the past two months," says the purchasing agent for a sheet metal fabricator in Indianapolis. And "The hot-dipped galvanized sheet price increases (to $600/ton) being proposed for third quarter (from $420 in the second quarter) are ridiculous," says the group purchasing director for an industrial packaging products firm in Ohio. There is a spread between the market price for steel shipped in the current month and the price being proposed for delivery in future months. And nowhere is that spread more evident than the current sheet market. The steel buyer at a service center in Michigan says hot-rolled sheet for fourth quarter deliveries is in a range of $390 to $480/ton (versus a May-June price of $310-$320).

Consolidation of some resins producers and production cutbacks in production this year to match slower demand appears to be tightening supply of some resins even though, "overall, the recession is not over," says the senior buyer for a plastic products firm in California. Buyers at a fastener maker in Massachusetts and an electronics firm in North Carolina both suggest that resin pricing is increasing for no valid reason. As trouble spots, buyers cite certain grades of polyvinyl chloride and polyethylene.

Since the Federal Trade Commission allowed domestic PVC producers to consolidate to four major players, "the market has been very volatile," says a purchasing manager at a thermoplastic sheet maker in the Middle Atlantic region, who fears the remaining group may be manipulating market prices. Another buyer, a purchasing vice president at a maker of plastic bottles in the Northeast, agrees that "PVC resin manufacturers have created a shortage by taking a billion pounds of annual capacity offline, and by reducing output of operating plants, which in turn depletes inventories." He adds that, "This leads to tight supply and escalating prices."

PURCHASING's Transaction Price Index for plastic resins hit a two-and-a-half-year low point in January, but has been rising gradually ever since. In May, it was at about the same level as last October. And rising resin prices affect such downstream products as packaging film, according to the purchasing director of a catalog printing firm in Wisconsin.

In defense of producers, the executive vice president for as resins manufacturer in New Jersey points out that market prices for such chemical feedstocks as styrene, toluene and xylenes "are all up in price." PURCHASING's Transaction Price Index for chemicals rose to an 11-month high in May.