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GIRDING FOR THE FUTURE: ; 'Nobody in Our Industry is Making Money' Global Market Hurts Steel Buyers, Helps Steelmakers

Posted on: Thursday, 7 July 2005, 00:00 CDT

The steel industry has spread out and trimmed down. Of the top 10 steelmakers today, only two are American. The footprints of this evolution can be seen in profits, labor contracts, former steel towns and the bottom line of steel consumers. This story is one in a series on the globalization of the industry.

DETROIT - For steelmakers, a new global market has meant steady and sometimes record profits in an industry many had written off. For companies that buy steel for everything from auto parts to appliances, it's meant pain.

"It's been a nightmare over the last two years," said Bill McKibben of Pridgeon and Clay Inc., a Grand Rapids, Mich., supplier of muffler heat shields and other products. "Most Americans don't understand what an impact steel pricing is having on U.S. manufacturing."

Steel consumers, from the automakers of Detroit to the home builders of Honolulu, are finding themselves on the very expensive other side of global consolidation: There are fewer steelmakers at a time when China and other developing nations are snatching up the steel and the raw materials needed to make it.

The law of supply and demand means steel sellers are getting top dollar from steel users, some of whom pass the costs on.

Steel buyers say their struggle began in 2004, a year they often refer to as "the perfect storm."

President Bush lifted tariffs on imported steel, and many companies hoped prices would finally fall. But the dollar was weak, so even without tariffs, the steel was costly. Simultaneously, China was experiencing a construction boom, and it drove up prices in the U.S. market.

Companies tried to pass along the higher costs, but some were hampered by long-term contracts with clients.

Privately held Pridgeon and Clay failed to make a profit in 2004 and paid $20 million more for steel than it budgeted - an amount equivalent to half the company's 900-worker payroll, McKibben said.

Steel consumers say the federal government is unfairly protecting the steel industry by keeping many tariffs in place. Proponents of the tariffs, however, say they're keeping out unfairly traded products.

But companies like Dura Automotive Inc. are losing business. CEO Lawrence Denton said one of his customers outsourced the manufacture of an auto part to China because Dura could no longer compete on price.

Auto parts suppliers are particularly vulnerable because they have limited ability to bargain with big automakers that can be relentless in cutting costs.

For its part, the auto industry is fighting back. General Motors, Ford and DaimlerChrysler have tried to control prices by buying steel and selling it back to suppliers, as well as lobbying Congress. Ford has had a resale program for 10 years to control quality and ensure supplies.

Delphi, the largest U.S. auto supplier, has accelerated a program to reduce the $14 billion it spends on materials each year, assigning engineers to find materials that could replace steel.

Until there's a substitute, however, steel users must wrestle with bigger bills.

Steel prices have fallen about 30 percent so far this year, but McKibben wonders how long the relief will last.

To his mind, it won't come soon enough: "Nobody in our industry is making money."

Source: Charleston Gazette, The

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