Gerri Willis of FOX Business on how manufacturers are doing at the moment and Biden’s next ‘Buy American’ plan.
A faster-than-expected recovery in US manufacturing is resulting in supply disruptions and higher costs for materials used in products that meet increased demand.
Prices for steel, aluminum, sawn timber and other materials are rising in response to higher order volumes. Commodity supply chains are now jammed with orders, causing some producers to add weekend hours and overtime for employees. Orders that took a week or two to fill during the summer now require six to eight weeks, according to manufacturers who deal with extended lead times for essential supplies.
“Lack of availability is what kills you,” said Mark Verhein, president of Church Metal Spinning Co., a manufacturer of steel parts for large industrial engines based in Milwaukee. “If you can’t get the material, that’s annoying.”
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When many factories closed for more than a month last spring to contain the spread of the coronavirus, production of industrial commodities also fell. Inventories evaporated and suppliers hesitated to increase production during what was expected to be a slow recovery in the industry in a United States economy that had entered a recession in February. But demand for durable goods increased in late summer and gained momentum during the fall, even as Covid-19 infections reached record levels.
Consumers who could not afford to spend on vacation, dinner out, shows and various services, opened their wallets to buy automobiles, appliances, recreational vehicles and home renovations and construction. As a result, prices for some industrial commodities, including steel and copper, have reached their highest levels in years.
The price of paper used in corrugated cardboard increased along with the demand for boxes for delivery of e-commerce goods. Depressed oil prices have recently rebounded from a seven-week high that helped push benchmark oil to more than $ 50 a barrel.
US commodity producers have also benefited from the strengthening of global prices, especially for aluminum. Its spot price on the London Metal Exchange increased 39% from its April low, according to S&P Global Platts. The domestic price of noble steel scrap used in the manufacture of new steel has risen 60% since November, helped by the increase in external demand. Turkey has been seeking exports from the US, and lately also China, which is importing scrap for the first time in almost a decade.
“We can sell everything we have,” said Brad Serlin, president of United Scrap Metal Inc., near Chicago. “Steelmakers that were out of the market are suddenly placing large orders.”
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Domestic steelmakers in need of scrap began accepting shipments on Saturdays in late October for the first time in years, Serlin said.
Church Metal’s Verhein said he had to delay deliveries of some orders because the parts maker was unable to get enough steel, and what the company can buy costs twice as much as six months ago.
He said that in some products he is choosing to make less profit now, instead of passing on higher steel prices to his customers. For other products whose margins were already small, Verhein said he had no choice but to raise Church prices to avoid losing money.
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Some manufacturers have stocked materials to protect themselves from lack of availability in the future. They are counting on the ability to quickly recover the additional cost of maintaining more inventory than normal with increasing sales.
Optimas OE Solutions LLC, a manufacturer of screws and fasteners, recently accumulated $ 2 million in steel wires at its Wood Dale, Illinois plant, compared to $ 250,000 before the United States erupted in March.
“It will give us an advantage,” said Chief Executive Marc Strandquist. “Supply chains everywhere are malfunctioning now. We can smother our customers with services.”
Strandquist said orders for fasteners from the commercial truck industry and agricultural machinery manufacturers have been strong lately, as demand for these equipment has recovered from a fall that began before the pandemic.
Even as demand improves, some manufacturers say they have not been able to recover all of the higher material costs.
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At Northwest Hardwoods Inc., orders for wood used in kitchen cabinets, flooring and finishes around doors and windows increased by about 15% over the previous year with the increase in construction of new homes. But the company said the cost of obtaining and processing maple and oak logs has increased more than the prices it can charge for finished boards. Sawmill production is also limited by a shortage of labor.
“It is not great on our margins,” said Chief Executive Nathan Jeppson. “I don’t know anyone who is making a lot of money.”
Since November, Tacoma, Washington, has operated under bankruptcy protection that it attributed to the collapse of pandemic orders last spring and the drop in exports to China because of retaliatory tariffs on U.S. lumber imposed in 2018.