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To All Our Customers:
The economic turmoil our country has endured over the past twelve months has
certainly stretched the limits for a lot of companies. In our industry, we
have all seen a decline in business in the past year due to the reduction in
commercial construction, oil and gas exploration, and even refinery
maintenance.
However, since approximately September, we have seen a small but definitive
increase in the quantity of material going out our door, to the point where
this past December was on par with 2008. As I write this letter, oil has
gone over $83, and natural gas went over $6, an indication of things getting
back to a more normal level. Over the past two months and looking ahead,
scrap prices are jumping and are up 30% in January and are projected to go
up another 30% in February. These scrap prices play a big
role in our purchasing of steel flange forgings. Billets that have been in
good supply with normal delivery of 3-4 weeks have now started to creep up,
with “special-chemistry” billets now out to about 12 weeks.
We have also been told that finished flange pricing is up 15-30% (depending
on size) in India because steel has risen dramatically there since the
beginning of this year. There are several reasons for this increase in
scrap prices, one being that the world economy is beginning to adjust itself
again because the demand for steel is increasing. Another reason for the
increase in scrap prices is because there is generally not as much heavy
manufacturing going on at this time in the United States. The slowdown in
the manufacture of welding fittings and flanges, automobile-making, etc. has
caused a lack of steel in these markets, thus creating a shortage of scrap
and causing the price of scrap to increase. Also, inventories for both
manufacturers and supply houses have been allowed to run down below their
minimum levels, and the need to replenish material is apparent. Based on
historical research, inventories in general in all sectors of business are
down to 1947 levels of sales/inventory ratios. With things beginning to
take off, you will see scarcity/longer lead times on some product in the PVF
market, and very likely some higher pricing.
We have also seen dumping duties placed on OCTG pipe, from Chinese pipe
mills. Another government action was started for line pipe (the type of
pipe that is used for making welding fittings) against China. This will
drive up the prices of domestic, European and Japanese pipe coming into the
United States. We have already been told by some of our U.S. pipe suppliers
to expect higher seamless pipe prices in the second quarter of 2010. It has
been announced that ERW and CW pipe prices are also on the rise now. We are
keeping a close eye on the volume and pricing of imported finished fittings
and flanges.
Although business has not been normal over most of the past year, we have
noticed recently that more and more people are asking for domestically
manufactured material. Some cite the new stimulus package with that
requirement, others cite the lack of quality in some of the import material
coming in, and yet others just want to support the American workers.
Whatever the reasons, we have definitely seen more inquiries for this
material. We have continued to expand with new equipment to make both
fittings and flanges in our plant here in Chicago. This equipment was
designed to be fully automated with a goal of a reduction in manpower to
keep our costs down. With that in mind, we have expanded our product range
with the introduction of Y52 material through 12”, and true Schedule 80
material up through 24” along with our 3R 90’s for that type of market. We
also have a program in place that will enable us to produce Class 900 and
1500 lb. flanges in our Chicago manufacturing facility.
All these improvements will allow us to better serve our customers in all
areas of domestic welding fittings and flanges. Based on current trends, we
are hopeful 2010 will be better than 2009, and we suggest a close
examination of your inventories to determine if they are at the levels you
may want to adjust.
Wishing everyone a healthy and a
prosperous New Year.
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