Supply Excellence — Suppliers Pessimistic as Steel Prices & Demand Fall

Suppliers Pessimistic as Steel Prices & Demand Fall

November 20th, 2008 · by Mike Petro · No Comments · LCCS and trade, sourcing, supplier management, supply management, supply market dynamics

Global steel prices are dropping fast and starting to approach the magical $650-per-ton mark, which is the estimated total cost of producing one ton of steel, according to steel industry consultants World Steel Dynamics. As a result of the sharp drop in steel prices and profits for mills, raw steel production is dropping fast, with US output declining for the 13th week in a row. Current capacity utilization for US mills is 58.7 percent, which is the lowest level since December 2001. Despite the sharp decline in US production figures, the projected global production volumes over the next 12 months are expected to be the same as the last year or slightly higher.

But it’s not just the sinking prices and profits that worry suppliers. The overwhelming fear of dropping demand is weighing heavily on their minds.

The Precision Metalforming Association (PMA), a group of metalforming companies in the U.S. and Canada, recently published the results of a survey of member companies that emphasizes the deteriorating market conditions for metalforming companies.

70 percent expect general economic activity to decline during the next three months, compared to 67 percent last month, and 38 percent that felt this way in November 2007. This marks the lowest confidence the PMA has seen in more than two years.
42 percent of U.S. metalforming companies have at least a portion of their workforce on part-time or layoff status, which is up sharply compared to 30 percent last month, and 13 percent in November 2007.
67 percent of companies surveyed project a decrease in incoming orders, compared to 54 percent last month and 38 percent of respondents in November 2007.
50 percent of responding companies say their shipping levels are below those of three months ago, compared to 30 percent in November 2007.

The supply base is already feeling the effects of a down economy, and further declines are expected by the end of the year. While rising raw materials were a major concern for suppliers in 2007, the reduced demand and negative outlook on incoming business in the coming months is an even larger concern for suppliers.

***Portions of this post are reprinted from my Metals Core Category Detail in this quarter’s SupplyWatch report. The full article is here and a free subscription to the electronic version is here.***

Mike Petro is the Senior Category Manager for Metals in Ariba’s Global Services Organization. Previously, Mike analyzed supply chain options and competitive pricing for US Steel and Timken Latrobe Steel.

Email Forward & Bookmarks