By Tom Stundza
Escalating steel prices seen as a reason to reduce the supply base and seek out substitute materials.
Value analysis was initiated in late 2005 for the half-dozen metalworking companies under the United Technologies Corp. umbrella when it became apparent this year's corporate cost of stainless steel sheet was heading for an increase of 35% and maybe higher.
'There are lots of opportunities for value analysis within the commercial group that would both reduce future cost and increase the functionality of our metals buys,' says Troy McFarlane, commodity manager for commercial metals at UTC in Farmington, Conn. 'We decided to go with stainless steel, first, because of the volume of the total buy (around 20,000 tons/year on average) and the inflation rate our businesses were trying to handle individually. Also because of the possible use of duplex, martensitic and ferritic grades of stainless steels in which nickel plays a lesser role than in austenitic and precipitation hardening stainless steels.'
All metals are targeted
Over the past few months, a number of high-priced acquisitions have taken place in the steel industry. Investors are expecting more mergers or buyouts but service center executives and buyers have been uncharacteristically quiet in voicing their opinions. That’s probably because the jury still is out on the supply-side impact of the merger and acquisition frenzy in commodities. However, it’s already obvious that the M&A activity has triggered or, at least, bolstered the increases in prices since December for steel, aluminum, nickel, copper and other commodities. In theory, M&A activity could allow producers to curb supplies when necessary to keep prices up in the future. We’ll explain in this edition’s Cover Story where this latest round of consolidation has gone in steel. “This is an extremely active period in the steel industry,” says John Amodeo, the chief financial officer at Samuel Manu-Tech in Toronto, a value-added processor of various industrial products made from metals and plastics. He suggests that announced consolidations in the international steel market eventually should support stable-to-increased pricing—as metals companies seek the financial heft needed to compete globally. Actually, that’s a key reason why investors predict still even more marriages and takeover deals. But, some investors disagree: Rather than being a sign of the peak for commodity prices, some investors say the corporate deal-making could help put a lid on supply and put even more upward pressure on a host of commodity prices. Only time will tell.
Interestingly, it’s that kind of wait-and-see attitude that permeating the manufacturing marketplace—even though a new Federal Reserve Board report on industrial production shows an unexpected 0.7% rebound occurred in April by utilities, automotive and high-tech manufacturing. Capacity utilization at the nation's factories, mines and utilities was a slightly greater than expected 81.6% as manufacturing capacity use picked up. Still, industrial production has been mixed in recent months—and April's rise was only the third increase in the last eight months. A key gauge of future economic growth, the Index of Leading Indicators fell 0.5% in April, suggesting a slowdown in the months ahead, says the Conference Board. And, business conditions remain in a slow-growth mode this month, according to the latest Purchasing magazine buyers’ survey. Economists and bankers say the 2007 economy remains on track to have the slowest growth since 2002. So, in the Metals Chips segment, we’ll discuss why buyers aren’t arguing—or impressed with the fact that production of consumer durables, goods meant to last longer than 3 years, advanced by 2.1% in April.
No comments:
Post a Comment