The faster-than-expected recovery of the US manufacturing industry has led to supply disruptions and higher costs for materials used in products that meet increased demand.
The prices of steel, aluminum, wood and other materials have risen due to increased orders. Now, the commodity supply chain has been blocked by orders, causing some manufacturers to increase their weekend time and staff overtime. According to the manufacturer, orders that took one or two weeks to complete in summer now require six to eight weeks to cope with the extended waiting time for basic supplies.
Mark Verhein, president of Church Metal Spinning Co., a Milwaukee-based manufacturer of steel parts for large industrial engines, said: “Lack of availability kills you. “If you can̵
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Last spring, many factories were closed for more than a month to curb the spread of the coronavirus, and the production of industrial goods fell. Inventories have evaporated, and suppliers are wary of increased production during the slow recovery of the manufacturing industry in the US economy that is expected to fall into recession in February. However, despite the Covid-19 infection rate soaring to record levels, the demand for durable goods rebounded in the late summer and increased in the fall.
Consumers cannot spend money on vacations, dining out, concerts, and various services. Instead, they open their wallets for cars, home appliances, recreational vehicles, and house decoration and construction. As a result, the prices of some industrial commodities, including steel and copper, have climbed to their highest levels in years.
The price of paper used in corrugated cardboard increases with the demand for boxes used to deliver e-commerce goods. The sluggish oil price recently rebounded in a seven-week rebound, which helped push the benchmark crude oil above $50 per barrel.
U.S. commodity producers have also benefited from rising global prices, especially aluminum prices. According to data from S&P Global Platts, its cash price on the London Metal Exchange has increased by 39% from its April low. Since November, the domestic price of high-quality scrap used to make new steel has risen by 60% due to increased overseas demand. Turkey has been looking for exports from the United States, while China is also looking for the United States. This is the first time in nearly ten years that it has imported scrap steel.
“We can sell everything we have,” said Brad Serlin, president of United Scrap Metal Inc. near Chicago. “Steel mills that have suddenly withdrawn from the market are making large orders. “
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Mr. Serlin said that domestic steel mills requiring scrap steel began to ship goods on Saturday from late October, which is the first time in many years.
Mr. Verhein of Church Metal stated that he had to postpone the delivery of some orders because the parts manufacturer could not obtain enough steel, and the cost of the steel that the company was able to buy was twice what it was six months ago.
He said that in certain products, he now chooses to reduce profits instead of passing on higher steel prices to customers. For other products where profits are already thin, Mr. Verhein said that he has no choice but to increase the price of Church to avoid losses.
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Some manufacturers have stockpiled materials to prevent lack of availability in the future. They expect to be able to quickly recover the increased costs of holding more inventory than usual as sales increase.
Bolt and fastener manufacturer Optimas OE Solutions LLC recently accumulated $2 million worth of steel wire at its Wooddale, Illinois, plant, up from $250,000 before the American pandemic broke out in March last year.
CEO Marc Strandquist said: “This will give us an advantage.” “Supply chains around the world are now in shattered conditions. We can suffocate our customers through service.”
Mr. Strandquist said that recent fastener orders from the commercial truck industry and agricultural machinery manufacturers have been strong because the demand for such equipment has recovered from the downturn before the pandemic.
Although demand has improved, some manufacturers say they still cannot recover all the higher material costs.
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At Northwest Hardwood Company, due to the increase in the construction of new houses, orders for wood used for kitchen cabinets, floors, and doors and windows have increased by about 15% over a year ago. But the company said the cost of acquiring and processing maple and oak logs has risen more than the price it can charge for finished boards. The output of sawmills is also limited by labor shortages.
CEO Nathan Jeppson said: “This is not good for our profits.” “I don’t know who makes a lot of money.”
Since November, the Tacoma, Washington company has been operating under bankruptcy protection. This is attributed to the decline in orders for the pandemic last spring and the retaliatory tariffs imposed on U.S. timber in 2018, resulting in a decline in exports to China .