A faster-than-expected recovery in U.S. production results in supply disruptions and higher costs for materials used in products that meet increased demand.
Prices for steel, aluminum, timber and other materials are rising in response to higher order volumes. Supply chains are now clogged with orders, prompting some manufacturers to add employees’ weekend hours and overtime. Orders that took a week or two to complete during the summer now require six to eight weeks, according to manufacturers, which are coping with extended waiting times for important supplies.
“The lack of availability is what kills you,”
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As many factories closed for more than a month last spring to contain the spread of coronavirus, so did the production of industrial raw materials. Inventories evaporated and suppliers were cautious about increasing production during what was expected to be a slow recovery for manufacturing in a US economy that had gone into recession in February. But demand for durable goods rose in late summer and gained momentum during the fall, even as Covid-19 infections rose to record levels.
Consumers who could not spend on vacations, eating out, concerts and various services, instead opened their wallets for cars, appliances, recreational vehicles and improvements and construction for the home. As a result, the prices of some industrial raw materials, including steel and copper, have risen to their highest levels this year.
The price of paper used in corrugated cardboard has risen along with the demand for boxes used to supply e-commerce goods. Depressed oil prices have recently returned in a seven-week rally that helped push benchmark crude oil above $ 50 per barrel. Barrel.
U.S. commodity producers have also benefited from strengthening global prices, especially for aluminum. Its cash price on the London Metal Exchange has risen 39% from its lowest in April, according to S&P Global Platts. The domestic price of steel scrap used to make new steel has risen by 60% since November, helped by increased demand abroad. Turkey has sought out US exports, and recently China has also been importing scrap for the first time in almost a decade.
“We can sell anything we have,” said Brad Serlin, president of United Scrap Metal Inc., near Chicago. “Steel factories that were suddenly out of the market are making big orders.”
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Domestic steel mills in need of scrap began accepting shipments on Saturdays in late October for the first time this year, Serlin said.
Mr. Verhein of Church Metal said he had to delay delivery of some orders because the subcontractor could not get enough steel and what the company is able to buy costs twice as much as six months ago.
He said on some products that he chooses to make less profit for now, rather than giving higher prices of steel to his customers. For other products where margins were already thin, Mr Verhein said he had no choice but to raise Church prices to avoid losing money.
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Some manufacturers have stored materials to protect against future unavailability. They expect to be able to quickly recover the extra cost of keeping more inventory than usual with increased sales.
Optimas OE Solutions LLC, a manufacturer of bolts and fasteners, recently accumulated $ 2 million worth of steel wire at the Wood Dale, Illinois plant, up from $ 250,000 before the pandemic broke out in the United States last March.
“It will give us an advantage,” said CEO Marc Strandquist. “Supply chains everywhere are running clumsy right now. We can stifle our customers with service.”
Sir. Strandquist said orders for fasteners from the commercial truck industry and manufacturers of agricultural machinery have been strong recently as demand for such equipment is recovering from a downturn that started before the pandemic.
Although demand is improving, some manufacturers say they have not been able to recover all of their higher material costs.
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At Northwest Hardwoods Inc. orders for timber used in kitchen cabinets, floors and cladding around doors and windows have increased by approx. 15% from a year ago on increasing construction of new homes. But the company said the cost of procuring and processing maple and oak timber has risen more than the prices it can charge for finished boards. Output at sawmills is also limited by labor shortages.
“It’s not good on our margins,” said CEO Nathan Jeppson. “I do not know anyone who makes a lot of money.”
Since November, the firm Tacoma, Wash., Has been operating under bankruptcy protection, which it attributed to broken orders from the pandemic last spring and declining exports to China due to retaliatory tariffs on U.S. timber introduced in 2018.