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
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
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.