With demand and orders for ag equipment on the rise, manufacturers are beginning to see steel supplies tighten, and in some cases, higher prices.

“We’re so busy we can’t keep up, and I don’t think we’re alone,” says Terry Flanary, director of sales and marketing for National Tube Supply Co., University Park, Ill. “As far as sup- ply, it’s much tighter than it was last year, and our lead times continue to expand.”

The steel mills are well aware of the situation, he adds, and have reacted in recent months by raising prices. According to a recent Wall Street Journal report, steel prices have increased 4-12% in several key categories, following a summer of soft prices. “It’s supply and demand,” says Flanary. “And the exchange rate isn’t necessarily in our favor right now. A stronger dollar hurts when you’re importing steel.”

To keep pace, suppliers and manufacturers alike are keeping a watchful eye on steel supplies. 

“We’re being more aggressive with inventory and boosting tonnages when we order,” says Flanary. “In many cases, we’re doubling our quantities when we buy steel.”

Richard Brown, the president of Krause Corp., in Hutchinson Kan., a manufacturer of farm implements, says he’s been working closer than ever with his firm’s suppliers to develop accurate forecasts and avoid price increases.

“Our lead times on bearings are stretching out to a year and we’re not completely clear why,” he says. “We think it’s due to a decrease in domes- tic capacity taken out and so much sourcing to China, so we’re buying as much as we can.”

Brown notes that keeping the cost of steel in check is the key to holding down the cost of new whole- goods. “We’re not yet seeing a repeat of 2006 and 2007, when the price of steel doubled. That required our company to increase wholegood prices by about 25%, which none of us want.”

Mike Irish, general manager of Brillion Farm Equipment Co., Brillion, Wis., says his company is also feeling the pinch. Lead times on round tubing are running 20 weeks, up from 12 weeks. The high-alloys materials used for ground engaging points are also getting harder to source. “We’re planning far enough in advance that it’s not having an impact yet,” he says. “But we anticipate that prices will be going back up again in 2011, because of seasonal shortages of steel scrap.”

One reason steel supplies are lower right now is because manufacturers were focused on reducing inventories in 2009. This in turn has led to a reduction in capacity at the mills, and consolidation within used combines are higher.”

The rising inventory of used combines may also reflect the high level of new combine sales over the past the steel industry. “Now everybody’s trying to get inventories back up,” according to Flanary. “We’re using up our supplies as fast as we can bring them in.”

But with less capacity overall, inventory is especially tough to maintain. “With imports, we’re talking about 5-6 months before we can get the materials,” says Flanary. “We’re selling the inventory even before it hits the ground.”

Because some customers are hav- ing difficulty sourcing the materials they need, they’re using alternative approaches, he adds. For example, they may take materials that aren’t sized correctly and machine them to meet specifications.

Fortunately for National Tube, only about 10% of its total supplies are sourced from China. China’s increasing control of steel production has sparked controversy in recent years. “We don’t buy much from China because our main product is mechanical tubing, and the Chinese sell bar structural plate, which we don’t get involved with. That’s helped us stay out of the middle of this.”

The question for suppliers and manufacturers alike: is the current shortage temporary or is the industry headed for tighter supplies and higher prices in 2011? “Our gamble will come in 2011,” says Flanary.

Source: Ag Equipment Intelligence, October 2010