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Cemco looking to offset steel cost squeeze

Keywords: Tags  California Expanded Metal Products, Cemco, steel frames, Tom Porter, price increase, California Steel Industries, CSI, USS-Posco Industries UPI

LOS ANGELES — California Expanded Metal Products Co. (Cemco) is looking to boost steel framing prices by 5 to 10 percent April 21, as it moves to ease a cost-price squeeze created by rising galvanized sheet tags.

Cemco, considered one of the largest framing producers on the West Coast, also expects to post a similar increase in June to counterbalance higher steel costs, executive vice president Tom Porter said in an interview with AMM.

The City of Industry, Calif.-based company has seen "a slow creep in steel prices" since November, but has been unable to raise its own prices, Porter said, estimating that his company’s cost of galvanized sheet will be up $100 per ton from late last year through June.

Cemco attempted to raise prices by 10 percent in January, but was unsuccessful when its competitors failed to follow, Porter said. However, that effort took place during a seasonally slow construction period. The company’s current move to boost prices is being mounted at a more crucial time, when construction activity—and Cemco’s steel requirements—are growing.

"We’re at a very critical point; this increase has to go through in April, and we anticipate another one behind it," Porter said.

Cemco’s two major galvanized suppliers—Fontana, Calif.-based California Steel Industries Inc. (CSI) and Pittsburg, Calif.-based USS-Posco Industries Inc. (UPI)—have indicated that their "windows" to place orders "will shrink dramatically" in June from previous months, he said.

Although Porter acknowledged that these warnings might in part represent marketing tactics, he said Cemco is forced to take these cautions "at face value" in today’s firming steel price environment.

The combination of price increases and growing consumer demand that typically signal the end of an economic recession often squeeze downstream suppliers’ profits, as customers accustomed to prolonged periods of price weakness initially balk at paying more, steel market observers said. This can be especially hard on fabricators such as Cemco, where steel represents nearly 70 percent of costs.

Cemco probably hasn’t seen anything like the current combination of sustained steel price increases and strong improvement in its own markets for studs and other framing products since the economic recession started in 2008, Porter said. The Denver market is strong, while San Francisco is "on fire" and Texas—where Cemco opened its newest plant in 2012—is "extremely robust," he added.

While Cemco buys less expensive, imported galvanized, Porter said the majority of its steel is purchased from regional producers CSI and UPI. In any case, he stressed that Cemco doesn’t buy enough imports "to move the needle" on its average steel costs, although he noted that some of its smaller competitors are supplied primarily by foreign mills.

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