Stainless steel costs make their mark on Q2 profits

Stainless steel costs make their mark on Q2 profits

The rising cost of stainless steel in the U.S. has been cited by well known maker of household lubricants as a damper on second quarter profits in 2005 and it has led more than one manufacturer to warn customers it will soon be increasing prices for its products. A&B Process Systems, a company that makes stainless steel equipment for use in the processing industries has warned customers it would not be able to provide bids and quotations to potential customers until the turbulence in the market dies down. It would also have to review the delivery times for delivery of equipment, the company said. "The steel industries in the US also face higher manufacturing costs, due in part to higher energy and transportation costs as well as the rising cost of healthcare for employees," according to a source at A&B. The WD-40 company posted a 4.8 percent rise in third-quarter income, June 27, CEO Gerry O. Ridge said rising commodities prices had tempered growth and will cut into profits for the rest of the fiscal year. The cost increases are mainly due to the rising prices of steel for cans, petroleum for product ingredients, and shipping fuel and plastics for packaging. "We implemented a price increase in the third quarter that we thought would offset the rise in cost of goods,” Ridge said. “However, the increases in the cost of goods have been impacting us since the beginning of the year and some have continued to go up even more than expected." Stainless steel suppliers are currently only guaranteeing a price for only five days and in some cases, for even shorter times. The surcharges being applied have also increased markedly for stainless steels. Lead times for supply of stainless steel have also risen from 10 weeks to 12 weeks for commodity materials and from 12 weeks to 16 weeks for specialty steels. A&B provided an analysis of the stainless steel market to prove its point. It cited increasing demand by China for raw materials used for making stainless steels, the current devaluation of the US dollar, deficits in the supply of nickel and the closing of a large US plate production plant as factors that have contributed to the volatility in prices. Demand has increased substantially in the US, Europe and Korea. As a result, China and several other countries have limited the export of raw materials used in the production of steel such as iron ore and coke. In early December 2003, China became the first country to produce more than 200 million tons of raw steel in a year, representing a growth of about 66 percent since 2000. China is now the world's largest producer of steel.