A quicker-than-expected recovery in U.S. manufacturing is resulting in supply disruptions and higher costs for materials used in everything from farm equipment to washing machines and automobiles.
Consumers unable to spend on vacations, dining out and concerts instead have opened their wallets to make improvements to their homes and landscapes. Consumers also bought cars at a greater rate in the second half of 2020, contributing to an economic shift that has seen industrial commodities such as steel and copper climb to their highest levels in years.
The increased demand for these materials is showing up in manufacturers’ supply chains, which are clogged with orders, causing some producers to add weekend hours and overtime for employees. Orders that took a week or two to fill during the summer now require six to eight weeks, according to manufacturers coping with these extended wait times for essential supplies.
“The lack of availability is what kills you,” said Mark Verhein, president of Church Metal Spinning Co., a manufacturer of steel parts for industrial engines. “If you can’t get the material, that’s vexing.”
When many factories shut down for more than a month in the spring to contain the spread of the coronavirus, production of industrial commodities dropped off as well. Inventories evaporated, and suppliers were wary about ramping up production during what was expected to be a slow recovery for manufacturing in a U.S. economy that had entered into a recession in February. But demand for durable goods such as automobiles and appliances picked up in late summer and gained momentum during fall even as COVID-19 infections soared to record levels.
U.S. commodity producers have benefited as well from strengthening global prices and increasing demand, particularly for aluminum.
Its cash price on the London Metal Exchange is up 39 percent from its April low, according to S&P Global Platts. The domestic price for prime steel scrap used to make new steel has risen 60 percent since November, aided by increased overseas demand. Turkey has sought out U.S. exports, and lately so too has China, which is importing scrap for the first time in nearly a decade.
“We can sell everything we have,” said Brad Serlin, president of United Scrap Metal Inc. “Steel mills that were out of the market all of a sudden are doing big orders.”
Domestic steel mills in need of scrap started accepting shipments on Saturdays in late October for the first time in years, Serlin said.
Source: Wall Street Journal