Meat + Poultry - April 2005 - 27

STEEL Spike
O.E.M.s pinched by rising raw
material costs

A

fter declining in January and
February, steel prices were
expected to increase again
this past month, a trend that will
likely continue into the third quarter, predicts MEPS (International), a
United Kingdom-based supplier of
steel market information. However,
it suggested that prices would begin
drifting down by the end of the year
and beyond.
Original equipment manufacturers
serving the meat and poultry industry
have been affected most by increases
in stainless steel prices, which have
been reflected as surcharges by their
suppliers. During the past 18 months,
O.E.M.s saw surcharges triple, while
the base price has remained relatively
stableLooking back to January 2002,
Tony Renger, director of materials at
ALKAR, Inc., Lodi, Wis., says surcharges hovered as low as 3 cents per
pound. By late 2003, they had climbed
to around 20 cents per pound, and
eventually they topped out at more
than 60 cents per pound. This resulted
in an overall increase in the price of
stainless of approximately 75 percent,
according to Renger. Driving the surcharge increases has been the price of
nickel, which is a leading indicator for
future surcharges on the price of 304
stainless, Renger says. He uses the
Internet to track the price of nickel on
the London Metal Exchange. There is
a formula that O.E.M.s can use to determine what future surcharges are go28

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April 2005

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ing to do based upon what nickel is
selling for on the exchange, he says.
Earlier this month, nickel was selling for more than $16,000 per tonne
on the L.M.E., which is near the top
5 percent of where it has been in last
couple of years, Renger says.
While surcharges climbed steadily for most of 2004, the surcharges
plateaued this past October and
Renger expects the price of stainless
steel to fluctuate in a range of 5 to
10 percent, but nothing as alarming
as had occurred in early 2004.
Prices for stainless and carbon
steel have fluctuated and continue
to for a variety of reasons, according to information from A&B
Process Systems, Corp., Stratford,
Wis. Volatility factors driving the
price increases include labor strikes
at nickel producers worldwide; Chinese consumption of raw materials;
current devaluation of the U.S. dollar and large stainless steel plant
manufacturers closing in the United
States, according to the company.
Eventually, the laws of supply
and demand may help to relieve the
surcharges on stainless steel. "With
the nickel prices where they are, it
has made it very attractive for nickel
producers to expand production and
at some point in time we will see
too much product for the demand
and the surcharges will come back
down," Renger predicts.
Because the price of stainless
steel had jumped so dramatically,
most equipment manufacturers have

www.MEATPOULTRY.com

By Shane Whitaker
swhitaker@sosland.com

reflected this increase in the price of
their equipment. Adam Anderson,
president of Marlen Research Co.,
an equipment manufacturer firm
based in Overland Park, Kan., says
the company updates quotes on
custom-designed equipment every
time a customer inquires to adjust
for material pricing.
Stainless steel increases have
caused the company to raise the
price of its custom equipment over
the past couple of years, he adds.
"They notice the price increase, and
we tell them and even show them in
some cases the surcharges we are
getting. We are not pricing it any
higher than the material change,"
Anderson says.
Marlen also sells a product line
that is on a standard price list. While
the company put off increasing
prices for these products as long as
possible, it recently had to adjust the
price list to reflect increases in material costs, according to Anderson.
John Robertson, president of
Challenge-RMF, Inc., Grandview,
Mo., says processors understand
that all equipment suppliers'
prices are increasing because of
surcharges on stainless steel. "We
have to eat some of it, but we are
able to pass some of it along," he
adds.

We would like to hear from you-your
comments and questions about this
article are welcome. E-mail the author at:
swhitaker@sosland.com
http://www.MEATPOULTRY.com
Meat + Poultry - April 2005

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