February
23, 2004
This
letter is not going to come as a surprise to anyone but,
unfortunately, it must be written. The steel market is going
through a “perfect storm” right now and is more
volatile than it has been in more than 30 years. Pressure
to increase prices on EVERYTHING metal is coming from every
angle and with the recent demand from our recovering economy,
pricing (and availability) has not stabilized nor will it
in the near future. XXXXXXXX has not had an across the board
price increase in the history of our company, and we don’t
want to start now. We feel it is our job to control the
costs that are within our control. Our goal is to be the
Value Leader in the axle and parts business. These price
increases on steel and metal products are unprecedented
and compounded with scrap surcharges that are far removed
from our control. During the 201 Tariff, XXXXXXXX did not
increase prices because we had a reserve of material that
we were able to live off of and not pass the increases on
to our clients. Our reserve now has depleted and we are
now absorbing huge material cost increases because of the
following reasons:
1)
Scrap steel is at an all time high. (The steel making process
uses 75% iron ore and
25% scrap when making steel, if there is not scrap the last
25% is more expensive
iron ore.) The Asian markets (Japan, Korea, and China are
buying up the world’s
supply of scrap.
2) Coke has a huge shortage. Coke is used in the steel making
process. The main
supplier of Coke to the world had a fire and will be out
of commission for some time
to come.
3) The increasing cost of power to melt steel.
4) The weakness in the US dollar has made the US steel market
unattractive to foreign
sources of material. (Plus ocean rates have gone through
the roof because of the
American and the world’s demand for Chinese labor
and the shortage of ships to
carry the materials which will last for up to 30 more months.
5) Spring steel (the material used to make leaf springs
for trailer axles) has lost several
players in the market due to lack of interest in making
the product for the price the
industry demands and bankruptcy. Prices for spring steel
alone are up more than 70%
since December 2003.
The
prices for the components we purchase (raw and complete)
are changing for the worse every day. We are experiencing
the same pressure you are. Up until this point we have been
waiting for the “light at the end of the tunnel”
to show where the market will stabilize. We have been absorbing
huge increases so that we did not impact the clients that
we serve. It has reached a point that we are no longer able
to absorb the impact alone. Effective orders taken on March
1, 2004 and beyond, we must evaluate and adjust on an ongoing
basis the prices paid by your company until market conditions
are again predictable and stabilized.
Thank
you for your support of our company and for the trust you
have put into XXXXXXXX. We will continue to fight for your
concerns and your bottom line.
