July, 2008

About thirty days ago, a major steel company in the United States announced an $800-a-ton increase in the cost of pipe. We resisted raising our prices until we could see what the pipe companies intended to do with our pipe orders.  I also wanted to review our scrap prices to try to get a better reading on the market.  Finally, I wanted to see where forgings for flanges were going to settle.  Fortunately we waited, because the pipe mills we dealt with for many years held the price increase until our present pipe orders ran their course. This allowed us to hold our prices a little longer, permitting our customers to take advantage of that.

Flange forging prices are up again and we hear that steel companies are advising that billet for this product could go up again next month.  Both the pipe and the billet makers for flange forgings rely on scrap.  In May, 2008, all segments of the scrap industry were up sharply, the highest we have ever seen.  In June, prices for Number 1 bundles went up, but scrap for both solids and turnings, the type we sell, went down around $30-$40 a ton.  In July, Number 1 bundles continued to go up, and our price for scrap (both turnings and solids) has now exceeded the month of May.  This indicates to me that the steel market is still very tight and prices could continue to go up in future months.

We have now gone beyond our current purchase orders and we will start using the higher-priced pipe and billet material for flanges by about mid-August.  With these higher prices, we have been given no price protection beyond the beginning to middle of October.  With all this in mind, we will issue Price Sheet 808-I, effective August 1, 2008.  Additionally, the terms for prepaid freight will now be $50,000 list.  This should be approximately the same amount of weight, taking into effect the new price sheet.

With unparalleled worldwide demand for natural gas, gasoline and diesel fuel, the realization by the American public that this is not a short-term problem, and President Bush releasing previously off-limit areas in the country for drilling, we could be in a prolonged high-demand period for pipe and fittings in this country, and worldwide.  Industry people I’ve spoken to in the U. S. and around the world tell me they are all plagued with very long lead times and very spotty supplies.  I have been told by a customer of ours that one of his customers in the Houston area is already booking into 2010 for their product. 

In researching this letter, I was told by some steel suppliers that the way 2009 is shaping up, they feel that steel could be in even shorter supply for seamless pipe and related products for our industry.  They are not predicting lower pricing, but no one is predicting where the prices will be in six months.

We have carefully gone through our price sheet to see where we could possibly hold the line or increase not as much to avoid gouging our customers.  But the facts are that with this unprecedented demand we are seeing, even if we had extra steel orders on the books besides our normal deliveries that would last 4-6 months in normal times, those quantities are being used in half those times.

We will keep you informed of any developments in the industry, but I have never seen anything like this extraordinary period, even in the late 70’s and early 80’s.  This is truly a boom time for our industry.  If you have any questions, please feel free to call.

James J. Coulas, Jr.
President

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