Prices Rise as Manufacturing Recovers

Wow.

Another instance of 'res ipsa loquitor' eh?

Add to the escalating (still escalating) material prices: energy, raw and finished goods transportation, consumables, packaging, employee health insurances, taxes...

I have a headache.

Oh, and medicines, tooling upgrades, employee attrition, company vehicle compliance upgrades, inventory shrinkage...

Milo, is there any relief for any of us in sight? I know that it is what it is, but I cannot tell my customers that for another ten years. However, whenever a customer leaves (stating it is a price issue) they usually return, telling me the competition is as expensive as I am, and we mess up less than they do.

Hardly the endorsement I would hope for, but I will take what I can get. As we have discussed, 'Roma die uno non aedificata est'. ^{_{(Rome was not built in a day)}}

So much for any hope of prosperity for us working fools.

_{That Milo's a handsome rascal, ain't he?}

Doorman, DcaD, and members,

Sadly, the US steel business is no longer a meaningful barometer of the US domestic economy (or actually it is if you've seen the graph of manufacturing jobs as a percentage of employment).

Because of trade flows in and out of the country and the small size of the US steel market relative to that of the world, the US economy isn't a good indictor for US Steel industry either.

I visited China in 2003, and at that time was convinced that the center of graviity for steel and most commodities had shifted to there based on the latent and pent up demand for modern quality of life goods in China.. (IE, If they are to get to a de minimus standard of quality of life, how much steel, stainless steel, and aluminum will they consume? How many pots, pans, McDonalds counters, pipes for indoor plumbing, etc.?)

Since China right now consumes around half of all steel in the world, we think that we (US/North Americans) will continue to be whipsawed by their demand- and China Government policymaking and market diktat!!! More so than by our own supply demand factors here in North America.

This decoupling of prices and availability in North America from our North American supply and demand factors (ie our factors will be swamped by the magnitude of those in Cina and Asia.) will continue to drive pricing strength in the US steel market, regardless of our economic woes. So I expect prices to rise on good news here, and I expect prices to rise on bad news here, since the real determinant is demand in China, and that is not much reflective of US manufacturing factors or our news.

Thats my 2 cents.

What will it take to lower prices significantly?

The China real estate bubble to burst.

The govt there is not likely to let that happen. And they have lots of our bucks to keep it at high psi...

Milo

Hi Milo,

Actually, the problem is deeper with wider ramifications than just the commodity costs.

During this recession (I know, many debate what to call it, but I think the categorization fits), many of the suppliers of goods and services shrank dramatically, and all were impacted by their own cash-flow issues. Now, when there is an increased demand, they are challenged because they, themselves, have difficulty getting their 'raw materials', and they lack the staff to make goods or provide services. The end result, at least at my place in the 'food chain', is that lead times are extended (what was once 30 days is now 65 days or longer), because my supplier doesn't stock their 'raw materials', costs are higher (not just because of the commodity prices, but because my supplier's costs are higher to procure and produce), and, sadly, often the quality is lower, because many suppliers are now operating with fewer and less qualified staff.

The net-net for me is, I have to often pay cash-up-front for my goods AND the costs of those goods are higher, and I have to wait much longer to receive them AND when received they may not be of usable quality.

My customers are not happy, and because of the higher costs and delays in delivery, their sales are affected.

It is financial entropy, and although I am not an economist, I think it will take a long time to see any significant improvement.

Kind regards (also sad and worried regards) ...

"It is financial entropy, and although I am not an economist, I think it will take a long time to see any significant improvement"

Thanks god you are not an economist. The vast majority of them don't have any idea about what is going on. They were happily driving us into this mess and telling the politicians that they were doing a good job. "Deficits don't matter" they used to say...

Welcome to the "no inflation" society as per gov statistics...

No mysteries here. As soon as the governmental leaders start printing an extra trillion or so dollars (starting in nov 08), this 'appearance of rising prices' was a certainty. I'm just surprised that it hasn't happened sooner. (ref)

As somebody must pay... (that's us), it is only a matter of time til the bill comes.

Its a hamster wheel.. but our owners are spinning the wheel, we must work faster and faster just to stay even.

Chris

Prices are rising; however, it's not because of increased demand (unemployment is still around 10 percent). It's because of the increase in the supply of dollars, each one is worth less, making a commodity, which used to cost X dollars, now costs 2X dollars for the same amount. This is called inflation, which, if the U. S. is not very careful, will start to run-away; just like a speeding freight train.

At this point-in-time, casting blame is not the answer. We are so far under, right now, that we could fire every civil servant, cancel every program, and still not have enough to pay the National Debt.

In post WWII Germany, inflation was so high that workers had to get paid twice a day just to buy the day's supplies. It cost 100,000 DM to buy a loaf of bread.

Just marvel at it. $100,000 for a gallon of fuel.

I just read an article in regard to raw materials. And, I have to give credit, where credit is due.

China is spending 10's of billions of dollars out of its 2.7 trillion dollar reserve on infrastructure all over Africa.

This is a very shrewd move. They are not purchasing any land, but are building roads, schools, hospitals, refineries, etc. All of this is being done with imported Chinese labor.

What do they get out of this? Guaranteed access to all raw materials in these heavily invested areas for the next 20-30 years.

Without getting into the morality of this practice, it's brilliant.

The local economies will not get any substantial benefit, other than what's being invested now. By not outright buying land, the Chinese can strip these areas of their raw materials over the coming decades, and simply walk away when they are gone. Guaranteeing themselves low cost raw materials for the foreseeable future.

At least one country is investing in its economic future, unlike some others that I know.

Can anybody say, one world super power? It may be coming.