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1995 FIN – Rumors Up Prices

August 21
00:00 2009

1995 FIN – Rumors Up Prices

September 5, 1995 FIN – Barry Porteous of Carson, California-based Porteous Fastener Co explained the shortages of fasteners in the past year and ventured price predictions during a speech to the Western Association of Fastener Distributors meeting August 25 in Aspen, Colorado. The following are excerpts:

Recalling last winter’s shortages, Barry Porteous explained that “the demand for fasteners was at an all-time high. It was incredible. It was exciting, but it was scary.”
Prices shot up during the second quarter. Porteous noted 304 stainless was up 21% from the first quarter and 316 stainless leaped 49%.

Rumors of shortages contributed to the price spiral. “The demand for durable goods was there and shortages were caused by real problems but exaggerated by reaction to the situation,” Porteous explained.

However, demand has softened in the past few months and the dollar slide has subsided.

• One factor in the fastener price increases was raw materials going up 14%. That resulted in only 8% to 10% rate hikes in finished good because raw material is only one factor in the final product.

• Fastener prices are likely to “soften over the next couple months, probably firming up toward the end of the year,” Porteous predicted.
The year-end firming can be attributed to major importers placing huge orders for spring and distributors putting in mill orders at the same time.
“All of a sudden the factories start to get big orders and they get a little heady about the economy,” Porteous said.

• Stainless steel prices are likely to drop the most because stainless steel “rose the most so it has the most to lose,” Porteous explained.
Taiwan is gaining a domestic source for stainless steel wire rod and thus will not be as dependent on Japan.
Low carbon products will probably decrease because a lot of raw material supply is available in the short term. There won’t be as much effect on medium carbon steel.

• The dollar fell 4.5% from January through April, triggering a price increase for Taiwan fasteners. However, the dollar has rebounded and prices have not yet decreased.

• Consumer durables peaked a year ago, Porteous noted. “Output of durable goods usually equates to output of fasteners,” he pointed out.

• Since 1993 there has been very little excess capacity in the industry. Lake Erie Screw Corporation’s backlog has doubled since 1991 and gone up 20% since 1993, even though capacity increased 15%, Porteous said.
The backlog at Nucor Fastener has increased from seven weeks in the first half of 1994 to 10 to 12 weeks a year later, Porteous said.

• Taiwan’s share of the export market has risen from a mid 40’s percentage in 1992-93 to low 50s in 1994-95, Porteous reported. Canada edged up from 15% in 1992 to 18% in 1995, while Japan dropped from 23% in 1992-93 to 11% currently. China accounts for 5% to 5% and Korea 4% today.

• Taiwan has increased its share despite typhoons and the February Chinese New Year, which together cost a half-month of production – 13,000 tons.

• Taiwan fastener manufacturers were especially hard-hit because they don’t have business-interruption or property insurance, Porteous added.
Automakers and other manufacturers are no longer carrying inventories, and that is changing the distribution business.
“It used to be when auto companies changed a model, they were the ones left holding the bad,” Porteous recalled. “I don’t think the obsolescence factor has increased, it has just fallen on different shoulders.”
“The barometer of last year doesn’t apply when automobile sales increase 25% in seven months,” Porteous observed.
“The only way to accomplish not having shortage problems is to be able to have better information,” he said in reference to EDI and advanced computer networks.
“Chrysler is talking about completing an automobile from the time they take an order to shipping it in seven days,” Porteous noted. “They aren’t building cars because they think they might sell. They are building cars that they are getting orders for. Think about all the people who supply parts to Chrysler – they need to be pretty well clued into exactly what parts they are going to have deliver in the next seven days.”

Computer tracking of more numbers will provide quicker reaction time, but this still “puts a tremendous burden on distributors,” he warned.
“It is going to add to the consolidation of our industry,” Porteous concluded. “You are going to have to deal with people that have those kinds of systems that can make those kinds of projections. It is a lot more sophisticated than an inventory in a warehouse.”

“Our industry is so fragmented that there is no one with a system that can crunch those number and feed back to manufacturers.” ©1995/2009

Related Links:

• Porteous Fastener

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