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CURRENCY Buyers are suddenly walled off and without an option

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There's little concrete data yet, but the first signs have surfaced that if the dollar remains low it might result in more business for small manufacturers. For now, though, the primary result of the soft greenback has been surging steel prices from a domestic steel industry virtually freed from import competition.

There are, for example, emerging signs of interest from European automotive component builders. Some of these manufacturers, who have been using their traditional European suppliers to support their U.S. plants, recently have been spurred to approach domestic suppliers to buy more locally due to the competitive dollar.

"They're trying to find opportunities to reduce costs and, in some instances, to move some overseas business to the United States," Neil D. Allen, president of Solid State Stamping Inc., Temecula, Calif., said. Allen's company supplies the automotive industry with copper and brass electrical contacts for such products as wire harness terminations, engine control modules, safety modules and airbag sensor modules. Accordingly, Solid State Stamping, which buys brass wire and strip and copper strip from service centers, has been quoting proposed supply programs for these manufacturers.

But shifting currency values are a two-edged sword. Walker Corp., Ontario, Calif., for example, would like to find competitively priced import sources for flat-rolled steel, but the weak dollar has discouraged foreign mills from U.S. shores. The company instead buys its steel from Midwest mills, since West Coast producers don't generally produce automotive-grade steel.

On the other hand, there's been "some quoting activity and interest" recently that reflects customers' efforts to shift purchases to the West Coast not only from Asia but from the Midwest as well, said Bruce Walker, president. He believes this is being driven not merely by currency shifts but by rising freight costs.

The supplier of stampings and welded assemblies, principally to Japanese auto transplants, used to buy the majority of its tooling from South Korea. However, the falling value of the U.S. dollar has prompted it to conduct a lot less business with that country and shift that buying mostly to China, against whose currency the dollar hasn't declined as much. The company's ability to buy this low-cost tooling "is what makes me competitive," Walker said.

The dollar hasn't been low enough for long enough to result in official trade data reflecting much of a trend toward greater domestic manufacturing, and Neil De Koker, president and chief executive officer of the Troy, Mich.-based Original Equipment Suppliers Association, said companies haven't had time yet to rebuild the tooling and equipment they might need to exploit a competitive dollar. "But I'm sure there's a lot of people doing some deep thinking" about doing more production in the United States, he said, pointing out that manufacturers who already have a global footprint can move work back to this country without too much trouble.

Still, early in the year it was probably safe to say that the impact of a weak dollar-along with rising global freight costs-was for the most part more of a headache for steel buyers due to its role in curtailing imports vs. its role in opening up new business, a potential benefit still seen for the future. And some buyers, along with their trade associations, emphasize that the same domestic steel mills that once solicited their support to block low-cost steel imports had hardly a second thought about using the absence of competitive foreign steel to support their own price hikes.

Wes Smith, president and owner of E&E Manufacturing Co. Inc., cited "rumblings" among his service center suppliers that-as a result of the record spike in steel mill price hikes from Jan. 5 to Jan. 15-they'd be looking to renegotiate some of their supply agreements with the Plymouth, Mich.-based producer of stampings and fasteners for the automotive industry. Moreover, while he hasn't yet seen signs that his industry is bringing in more work that would otherwise go overseas, he cited continuing pressure on stampers to set up operations in Mexico to support their own customers' plants south of the border.

Smith did note that some Canadian buyers of auto stampings, who traditionally gave preference to their own countrymen, have been encouraged by the strength of the Canadian loonie vs. the greenback. As such, they've shifted some purchases to U.S. stampers just across the border, although he sees this as a "temporary phenomenon" and doesn't expect it will last indefinitely.


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