The impact of the weak U.S. dollar has hit home at service centers as prices for imported steel products soar. While the greenback and general uncertainty over the U.S. economy have left some dark clouds hovering over U.S. industry, there might be a silver lining.
Kelly Pipe Co., a Santa Fe Springs, Calif.-based distributor, is one example. In late January, amid a rash of hikes, the company was informed that quotes for extra heavy-walled standard pipe from South Korea would climb by $120 a ton for second-quarter shipments vs. the first quarter. Earle Cohen, president and chief executive officer, lost little time notifying his sales staff.
"Obviously, we don't want to be selling too much below what our replacement cost might be four months from now," Cohen said. While competitive factors meant that it might not be realistic to expect a steep price rise to be pushed through immediately, it is nevertheless a good idea to make sure that the price you charge today doesn't ignore what you'll paying for new inventory in the future, he said.
In an era of price inflation caused in large part by the dollar's falling value—and also partly due to surging shipping costs—Kelly Pipe's experience isn't unusual. Prices for the products it carries escalated by 15 to 25 percent early last year, although the rate was somewhat less for domestic pipe than for imports. However, while Kelly Pipe is one of the West Coast's largest distributors of U.S. pipe, domestic production in general is limited in the region.
But there's an upside to the dollar's demise, since what's viewed on one hand as a "weak" currency also makes a more competitive greenback. "It depends on one's point of view, and from my point of view it's given stability to the market," David N. Deinzer, president and chief executive officer of Denman & Davis, Clifton, N.J., said. "The weaker dollar makes our customers much more competitive."
In fact, Denman & Davis has already seen an example of this phenomenon. "We actually have one major customer that's bringing work back to the United States from Europe because it's cheaper to produce here than in Europe," said Deinzer, who also believes that the reduction in available imports, along with consolidation in the American steel industry, has resulted in a "much firmer marketplace."
Mark Ridenour, chief financial officer of Heidtman Steel Products Inc., Toledo, Ohio, also thinks that a more competitive dollar is among the economic factors aiding his customers. He sees "a lot more people thinking about bringing work back here or to Mexico—a lot more than we've seen in the past five years." He also believes rising costs in China have worked to slow migration there. "We're actually seeing a lot more interest in Mexico from our customers" vs. going to China, benefiting U.S. service centers. They can't ship slit coils and sheet overseas, he points out, but they can deliver to Mexico.
Historically, one result of a falling currency value is a pickup in exports by domestic mills, which leaves less steel available for U.S. consumers, so it's no surprise that any sign of exports spiking—to the detriment of U.S. steel consumers—would catch the eye of the North American Steel Alliance, a buying cooperative of 98 service centers headquartered in Laguna Hills, Calif.
Lonnie R. Terry, president and chief executive officer of the alliance, which buys steel only from domestic steelmakers, acknowledges that U.S. mill exports "are a very important number for us" and the group likes to keep tabs on overseas steel shipments. But early in the year, he hadn't yet seen enough of a trend to raise red flags for his group's members, although he acknowledged that the low dollar could represent "an opportunity" for domestic steelmakers.
Miles Donovan, vice president of the alliance, thinks the competitive dollar might be partly responsible for such a surprisingly positive business outlook by the group's members despite worrisome news about the general U.S. economy. He believes this wasn't due so much to work being brought back from overseas but rather to jobs that are "being sourced here that a year ago might have been outsourced" to overseas manufacturers.
Kelly Pipe's Cohen stressed that it never pays to jump from one supply source to another just to exploit what might be impermanent trade factors, and even in an import-heavy pipe market like the West Coast a distributor must be careful to maintain its ties with domestic mills so they'll be available for added tonnage in times just like these. "You don't want to burn any bridges," he said.