A faster-than-expected recovery in US production has led to supply disruptions and higher costs for materials used in products that meet increased demand.
Prices of steel, aluminum, timber and other materials are rising in response to higher volumes. Supply chains are already clogged with orders, prompting some manufacturers to add weekends and overtime for employees. Orders that took one or two weeks to complete in the summer now require six to eight weeks, according to manufacturers, which deal with extended waiting times for major deliveries.
“Lack of availability is what kills you,”
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When many factories stopped for more than a month last spring to limit the spread of the coronavirus, industrial production also fell. Inventories evaporated and suppliers were wary of increasing production during the expected slow recovery of production in the US economy, which entered a recession in February. But demand for durable goods rose in late summer and picked up speed in the fall, even as Covid-19 infections jumped to record levels.
Consumers who cannot spend on vacations, dinners, concerts and various services have instead opened their wallets for cars, appliances, leisure vehicles and home and construction improvements. As a result, prices of some industrial goods, including steel and copper, have risen to their highest levels in years.
The price of paper used in corrugated cardboard has increased along with the demand for boxes used to deliver e-commerce goods. Depressed oil prices recovered recently in a seven-week rally, which helped raise the benchmark above $ 50 a barrel.
US raw material producers have also benefited from rising world prices, especially for aluminum. Its cash price on the London Metal Exchange is 39% higher than its April low, according to S&P Global Platts. The domestic price for primary steel scrap used to produce new steel has risen by 60% since November, aided by increased demand abroad. Turkey is looking for US exports, and more recently China, which has been importing scrap for the first time in nearly a decade.
“We can sell everything we have,” said Brad Serlin, president of United Scrap Metal Inc., near Chicago. “The steel mills that suddenly came out of the market are fulfilling large orders.”
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Domestic steel mills in need of scrap began accepting shipments on Saturday in late October for the first time in years, Mr Serlin said.
Mr Verhein of Church Metal said he needed to delay deliveries on some orders because the parts maker could not get enough steel and what the company could buy cost twice as much as six months ago.
He said that for some products he currently chooses to make less profit, instead of passing higher steel prices 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 prevent shortages in the future. They rely on the ability to quickly recoup the added cost of retaining 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 its plant in Wood Dale, Ill., From $ 250,000 before the U.S. pandemic erupted last March.
“This will give us an advantage,” said CEO Mark Strandqvist. “Supply chains everywhere are working in rags right now. We can suffocate our customers with services.”
Mr Strandqvist said orders for fasteners from the truck and agricultural machinery industry had been strong recently as demand for such equipment had recovered from a drop that had begun before the pandemic.
Although demand is improving, some manufacturers say they have failed to recoup all the higher material costs.
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At Northwest Hardwoods Inc. orders for timber used in kitchen cabinets, flooring and cladding around doors and windows are about 15% more than a year ago with an increase in new housing construction. But the company said the cost of obtaining and processing maple and oak logs is rising more than the prices it can charge for finished boards. Production in sawmills is also limited by labor shortages.
“It’s not great on our border,” said CEO Nathan Jepson. “I don’t know anyone who makes a lot of money.”
Since November, Tacoma, Washington, has been working under bankruptcy protection, which it attributes to the collapse of orders from last spring’s pandemic and declining exports to China due to retaliatory tariffs on US timber imposed in 2018.