Chaos in the steel market

March 1, 2004 By    

You’re going to have to dig a little deeper to put steel in the ground this summer. The soaring price and dwindling supply of steel worldwide is driving up the cost of propane tanks and raising red flags about product availability through 2004.

The price of hot-rolled steel in the United States rose a staggering 66 percent from last June to February 2004. That spike comes shortly after President Bush ended tariffs on imported steel in December, a move that was supposed to lower prices.

In addition to higher prices, steel makers are also adding rare surcharges and renegotiating contracts to compensate for hits they have taken on the spiking costs of raw materials and transportation.

Steel companies are passing along double-digit price hikes to tank manufacturers, who in turn are warning their customers to buckle up for a rough ride the rest of the year. Last year, a 500-gallon above-ground tank sold for about $600. That tank now runs almost $700 and climbing.

The price spikes come amid the propane industry’s push to bolster its limited infrastructure and add secondary and tertiary storage capacity to ease bottlenecks that aggravate propane price volatility.

Equally troubling is the fact that tank manufacturers cannot get firm price commitments or delivery dates from the steel mills. Orders that usually take five to six weeks to deliver are now backed up four to five months.

“The price increase is substantial, but after you get over the initial shock, you start worrying about steel availability. Just getting your hands on steel is difficult right now, and could be a real problem as the year progresses,” Jess Collins, president of Trinity Industries’ LPG Division was quoted in the National Propane Gas Association’s weekly newsletter.

Steel shortages can be blamed on several factors. Skyrocketing demand from China’s booming economy resulted in a 30 percent rise in steel consumption in that nation last year. China now consumes a whopping one-third of the world output of rolled steel. The more China buys, the less steel is on the market.

On the home front, the weak U.S. dollar limits the purchasing power of American customers to buy steel from foreign producers. That leaves domestic steel makers somewhat insulated from price competition. If the economy continues to strengthen and the demand for steel remains strong, prices could stay high well into next heating season.

And propane marketers will have to find a way to foot the bill.

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