Steel consumers not immune to gushing oil prices

Steel consumers not immune to gushing oil prices

Call it the “law of unintended consequences” or more precisely, “unwanted consequences”. However you may choose to phrase it, the soaring costs of fuel are having a profound effect in nearly all market sectors. From producer to consumer and all stops between, skyrocketing oil prices are pinching wallets and profit-margins, causing many companies to rethink the way they conduct business. Thus far, the steel industry has been fortunate…or has it? Some of the profound effects of oil price increases may have been hidden within the doubling steel prices themselves, but now they are slowly making themselves known to steel users. It’s hard to pinpoint exact amounts, but transportation already accounts for 10-20% of overall steel cost, especially if the steel is imported. Ocean freight, dock operations, and further inland transportation are very sensitive to fuel fluctuations. Transportation companies are trying to pass along the increasing cost of fuel via fuel surcharges. The highest fuel surcharge belongs to barge industry, where the surcharge falls between 18% and 37%. Naturally, most barge companies tend to favor the higher end of the range. This means steel cargoes moving from New Orleans to Chicago are now almost $4-5 /short tons more expensive; to Pittsburgh the cost has risen by $6-7 /short tons. Trucking companies are adding fuel surcharges at arbitrary rates, while rail fuel surcharges are currently about 10%. This means that goods transported from Houston to the Midwest or California incur a $4-5 /short ton surcharge for fuel. Add to these the already high steel prices, and it is no wonder that steel consumers are beginning to feel a rippling profit pinch. But revenge is not far off. Inevitably the higher cost of shipping materials trickles down to other sectors that depend on steel for their businesses. Truck and car manufacturers, ship builders, construction companies, no one is left out of the vicious cycle. The cost of materials, component shortages, and increasing backlogs are already spurring manufacturers to pass along their costs to fleet operators, who in turn find themselves paying higher premiums on heavy trucks and trailers. According to the Bureau of Labor Statistics (BLM), in year-on-year comparisons, heavy truck and trailer prices rose 7.3% and 3.2% in March 2005 respectively. During that same period, tires, tubes, and treads increased 4.4%.