Tempe, AZ, May 16, 2008 – The issue of rising costs has been of paramount concern for many manufacturers in the garage door industry and has recently caused numerous price increase announcements. It’s bound to happen again, an unusual circumstance for the industry.
Steel costs continue to escalate at a very rapid and substantial pace and some types of steel have increased by more than 50% since January 1, 2008. It’s never easy to pass on or absorb an increase but it’s not nearly as difficult during prosperous economic times and when our country is experiencing domestic growth and building.
Unfortunately our own national economics are not good and do not have a play a vital role in determining our escalating material costs experienced by garage door manufacturers because they stem from a global perspective of cost, supply and demand. These enormous cost increases get passed on to their customers in the form of a surcharge or price increase. A surcharge is used when they experience what they feel is temporary or possibly short term to adjust pricing according to abnormal spikes in the overall cost of their business. A surcharge allows them to evaluate the market conditions monthly before changing list prices or multipliers. A price increase is used when the manufacturers are very confident that new costs require price adjustments as they relate to product margins.
Generally, steel and steel parts have experienced substantial increases since January 1, 2008.
- Steel Coil – Pre-painted 45-55%
- Struts 30-40%
- Track Sets 25-35%
- Hardware Cartons 20-30%
- Torsion Tube 25-35%
- Springs Coned & Painted 25-30%
- Other Steel Components 20-25%
During the last six months the global steel market has experienced unprecedented price increases related to iron ore, coke, energy, transportation and scrap. These input costs are expected to continue to rise sharply and the cost impact is compounded due to the demand of steel Asia and other emerging countries are consuming. The BRIC (Brazil, Russia, India and China) countries will consume much more of the world’s steel supply than they have in past years. They are experiencing their own compressed Industrial Revolutionary period. Growth in each of these countries is estimated to be about 10% while the United States growth projection is estimated to be less than 1%. The U.S. produces and consumes less than 9% of the world’s steel.
As of April 2008 Steel Input Cost Increases to Steel Mills
- Scrap - CFB $/ton 92%
- Iron Ore $/ton 150%
- Coking Coal $/ton 160%
- Energy Costs $/barrel 25%
To make things worse the weak U.S. currency has lead to less imports being available because foreign mills are selling their steel to other countries at a more favorable currency exchange rate. Domestic mills are exporting steel to other countries that need more steel and are taking advantage of the weak U.S. dollar. The weak U.S. dollar will have a long term affect on global purchases and the price that consumers will pay for goods.
Manufacturers are hoping that “price ceiling” will be reached soon. It is very likely that the high prices may be here to stay unless the mills get some input cost relief and the global demand is less than anticipated. At the same time manufacturers are cautious because anything could happen at any time to put pressure back on an already tight supply market such as the earthquake China has suffered on May 12th. In addition to the number of deaths in China, they have also suffered numerous infrastructure damages such as buildings, roads, bridges and dams. The earthquake disrupted steel production and logistics in several areas. The damage was sufficient enough to bring two major steel making operations to a halt. Several Chinese companies have been affected by electricity and water supply shortages to their plants. Mining, chemical, petroleum and manufacturing companies, that suffered damage, have been summoned to stop operations and evacuate their premises. The steel market prices could go up again because of the surge in demand as reconstruction begins and as buildings are demolished that do not meet codes and require retrofitting.
The bottom line is that manufacturers, their suppliers and there garage door dealer communities don’t have much choice but to absorb these increases. It is extremely important that the builders, architects and homeowners, understand the dynamics of the situation as this will ultimately result in them having to bear the impact of these cost increases.