AEM survey cites continued concern for steel pricing

Increasing steel prices continue to have a significant detrimental impact upon the business operations of construction and agricultural equipment manufacturers, according to a recently released survey by the Association of Equipment Manufacturers.

The AEM survey highlighted what many in the off-road equipment manufacturing industry have reported throughout the past year – reduced steel availability and longer delivery times. Survey respondents said they have delayed hiring new workers, scaled back business expansion plans and shifted some production to non-U.S. sources because of increased steel prices.

Half of the survey respondents said they depend on domestic steel sources, with the remainder relying on a combination of domestic and overseas suppliers.

AEM President Dennis Slater says the survey underscores the adverse impacts rising steel prices have had on the organization’s members.

“We are very concerned about the potential dampening effect this situation will have on the continued economic recovery of the off-road equipment manufacturing industry,” Slater said.

The median steel price increase reported in the AEM survey was 60 percent, with many reporting increases of 100 percent or more. Some 45 percent of survey respondents anticipated steel prices would continue to rise through the first quarter of 2005, while 5 percent expected price drops.

Most economists and industry experts are predicting steel prices will continue to rise, at least in the near future. This is due in part to huge growth rates in many economics worldwide — particularly in East Asia — that dwarf the U.S. rate by several percentage points, according to Ken Simonson, chief economist for the Associated General Contractors of America.

Economists also cite the optimistic outlook for new construction in the United States as another reason for rising steel prices. The annually adjusted value of construction put in place topped $1 trillion for the first time in August and remained above $1 trillion through November, the most recent month for which the U.S. Commerce Department has released data. Construction spending for the first 11 months of 2004 was 9 percent higher than in January-November 2003.

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According to the U.S. Bureau of Labor Statistics, the price of steel mill products increased 46 percent from August 2003 to August 2004. The price of scrap metal has gone up 84 percent in the past year.

This substantial price increase for steel has also impacted construction equipment costs. Most manufacturers of such equipment raised their prices between 1 and 6 percent in 2004.

Nearly 85 percent of respondents in the AEM survey say they have absorbed some or all of steel price increases instead of passing them along to machinery buyers. This diversion of resources to pay for raw materials has led 32 percent of survey respondents to move production capacity offshore or outsource; 23 percent to postpone hiring plans; 28 percent to put off planned investments; and 15 percent to reduce work hours or eliminate operations.

To read previous articles about steel prices or to visit AEM’s website, click the links to the right.