Lars Andersson, marketing manager at Sandvik Materials  Technology USA, Welding and Wire Division, Clark Summit, PA, predicts that between now and the end  of 2007, “base spring material prices will go up, and the uncertain metal market will lead to reduced alloy surcharges.” Based in Clark Summit, PA, Sandvik manufactures  T-302, 904L, 316, 17/7 PH and Nitronic spring materials. Anderson says that low  profits in general are driving material costs and that all spring material  prices are subject to fluctuations because “base prices are too low, as is.”  Based on current market indications, he predicts that material prices will  continue to increase into the first quarter of  2008.

“While we continue to see short-term upward and downward fluctuations in raw materials, the long-term demand will place raw material suppliers in an enviable seller’s market.” ~ Bill Snyder

Terry Bartel, general manager, wire division, at Elgiloy Specialty Metals in Elgin, IL, predicts a slight decrease in material base prices between now and the end of the year. Elgiloy manufactures nickel and cobalt-based spring materials, as well as some stainless. The current factors having the greatest influence on material costs include “order placement based on raw material availability; the Chinese market, depending on whether it is hot or cold; and a little political maneuvering,” says Bartel. Going into the first quarter of 2008, “It’s anyone’s guess,” he says. “Most likely, the producing mills are not going to be willing to drop prices any more than necessary and will actually try to drive prices back up.” The materials most subject to price fluctuations are those containing nickel, cobalt, chromium or molybdenum, which covers many of the spring alloys. In terms of surcharges, he says those on nickel-based alloys are currently decreasing. “However, we are hearing rumors that the surcharges are going to go back up before year’s end,” he says. “The numbers that we have heard are not expected to be as high as previously, but no one is willing to commit or state anything definite.”

Kevin Bohne, director of industrial wire sales at National Standard in Niles, MI, and Stillwater, OK, sees material prices staying flat or slightly increasing through the end of this year and into the first quarter of 2008. National Standard, which makes carbon steel spring wire and stainless spring steel, currently does have a surcharge on nickel. “Wire rod prices are unpredictable, but we believe that weak domestic demand will be offset by disciplined wire rod mill pricing and strong global steel consumption” says Bohne.

Philip Byrnes, director of sales at Central Wire, says, “We see the base prices staying the same, but with the decreasing nickel prices, obviously the surcharges will decrease significantly.” Central Wire Group, with headquarters in Perth, Ontario, supplies the following alloys to the spring industry: 302/304, 316, 347, 17-7 PH, M400, K-500, 600, 718 and X750. Central Wire has surcharges, but at press time they were anticipated to decline in August and September due to the decrease in nickel by almost $10 per pound between May and July, 2007. “The surcharge for 302 dropped 47 cents per pound from July to August, and we expect it will decrease between 35-40 cents per pound between August and September, as the average nickel price for July was around $15 per pound,” says Byrnes. “Obviously, the alloys with higher nickel content are most subject to price fluctuations.” He attributes the current material pricing
situation to foreign competition and nickel pricing. Regarding early 2008, he says, “Based on what we read, we anticipate that the nickel pricing will level out and spring material pricing will do the same.”

Bill Gilman, manager of new business development at Ulbrich Stainless Steels and Special Metals Inc., North Haven, CT, says the factors currently driving material costs include nickel, chromium and molybdenum, supplier volume levels, rising health insurance costs and competition. “Any alloys having a high nickel content have seen significant price fluctuations due to material inventory cost vs. replacement inventory cost,” he explains. “Some companies use replacement material cost to price their products, while others use current material cost to price their products. This creates significant differences in prices for similar items. With the large fluctuation in nickel, chrome and moly alloy surcharges, one would expect to continue to see these differences until high-cost inventories are depleted.” At press time, Ulbrich’s total cost of stainless steel was decreasing, as alloy surcharges were on the decline. “However, this has been a very volatile cost element that could quickly change and go in the other direction,” he adds. “We see the base price of stainless remaining constant.” Ulbrich manufactures primarily stainless steel and specialty metals in strip, foil and flat wire in the following grades: T301, T301 with high silicon, T302, T304, T316, 15-7 PH, 17-7 PH, A-286, X-750, 718, Monel 400 and Titanium. “We see stainless surcharges continuing to decline to year end,” says Gilman. “In the month of August, they declined  16 percent, and in September another 18 percent. The rate of decline should slow as we move toward year end, with a potential for an upward trend returning if overall stainless steel volume levels increase.”

Dan Gutos is senior vice president sales, drawn wire, at Leggett & Platt Inc. in Carthage, MO, which produces carbon wire ranging from 1005 through 1080 steel grades and offers processing including oil-tempering, galvanizing, aluminizing, patenting and annealing. “Wire rod receives a considerable amount of attention when discussing the price of carbon wire,” says Gutos. “Some of the driving factors impacting wire rod prices in North America include scrap fluctuations; the availability of imported material; alternative products, such as rebar, being produced at the steel mills; and the consolidation of the steel industry as a whole.”

Leggett & Platt considers many factors in developing the costs to produce its products. “Wire rod, utilities and freight are significant factors with regards to getting a quality product delivered to our customers,” Gutos says. “Given the world markets we all compete in, each of the cost components have become very price sensitive to world supply and demand.”

Future pricing is uncertain, and Gutos suggests closely following the factors that drive the changes to make the most educated decisions possible.

Bill McClenathan is the sales and marketing manager at Sumiden Wire Products in Dickson, TN, which manufactures nickel- and soap-coated stainless steel spring wire. “The major alloying ingredients contained in stainless steels – nickel, chromium and molybdenum – are metals traded worldwide, and metals pricing is a function of supply and demand. Therefore, the higher the nickel, chromium and molybdenum alloy content, the greater the chance for price fluctuations,” explains McClenathan.

There are two cost components associated with stainless steels: raw material surcharge and base cost. The Raw Material Surcharge (RMS) is calculated monthly, and the principle element is nickel. In early June, the London Metal Exchange (LME) transaction price reached a historic high but recently has dropped off substantially. “Our forecast for the remainder of 2007 is that the RMS will decrease initially – about 19 percent from July to August – then remain fairly stable with minor fluctuations through the balance of 2007,” says McClenathan. “There is a strong possibility base pricing may increase by the end of this year. Increasing raw-material and production costs are the drivers.”

He predicts that pricing for early 2008 should be similar to that of the second quarter 2007. However, he cautions that the long-term trend will be increased pricing due to higher world consumption and finite availability. “Demand for metals, particularly nickel for China, is very strong. With no substantial new capacity being added, stocks are low, resulting in higher pricing,” he explains. “Fundamentally, it takes a long time to bring on new mining capacity, causing restricted supply in periods of higher demand. China and India are the drivers of higher demand, pushing consumption equal to or beyond current supply capacities.”

Byron Ress, general manager at Zapp Precision Strip Inc. in Stratford, CT, says, “Metal prices (not including surcharges) have essentially been stable for some time now, and I do not see that changing through the year.” Zapp manufactures stainless steel and high-performance alloys in strip form. Factors driving material prices include “many of the same factors springmakers are faced with – energy, health care, China and hedge funds.” He says Inconel is the material most subject to price fluctuations because of the nickel content. Zapp does have surcharges, which started to drop around 20 percent beginning in August and will drop again in September, Ress predicted at press time. “Beyond that is anyone’s guess, though I think surcharges will stabilize around the September level, once that is determined.” Looking ahead to 2008, Ress says, “There’s one thing for sure: No one knows what is going to happen.”

Otto Simmerman is the business unit manager, specialty steel wire – North America, at Bekaert Corp. in Orrville, OH. The Orrville location produces round and shaped wire in many different chemistries, including ASTM A228, AISI 1065 and 1075, chrome silicon, 6150, 300 series stainless, and 17-4 PH. The plant can also produce spring wires with Bezinal and galvanized coating, “a market that developed rapidly in Europe and is slowly evolving in North America,” says Simmerman. “Coating the wire with Bezinal has been replacing stainless steel in many applications.”

He says material prices are hard to predict. Previously, the scrap outlook was a good indicator of material pricing, but this is no longer the case. Because the steel industry has consolidated, “the few large players have such a significant chunk of the market that they can influence prices,” he explains. “Even though scrap has dropped in some cases recently, steel prices remain unchanged.”

“If I had to make a prediction, for the balance of 2007, I expect that wire prices should remain relatively stable,” he says. “I believe we are at a point where demand has significantly weakened and mills are searching for business; however the mills will be very cautious and not reduce prices to obtain more volume. They will operate at lower volumes and maintain existing margins.”

“Given the world markets we all compete in, each of the cost components have become very price sensitive to world supply and demand.” ~ Dan Gutos

Aside from base material prices, Bekaert also deals with surcharges on various elements, the most significant of which are nickel and chromium. Thus, materials such as stainless steel and nickel-based alloys can fluctuate in price because of their high nickel and chromium content. “As the prices of the elements fluctuate, the prices for these materials will follow very linear to the metals market price,” says Simmerman. “There has been a recent movement downward in the nickel surcharge. In 2006, zinc was increasing at a rapid rate. The volatility of metals has stabilized some from where it was last year.”

Regarding early 2008, “I do not have a high level of confidence that I can really predict what is going to happen,” he says. “I would have thought that in 2006 we had reached the ceiling on prices and I was wrong.”

Bill Snyder, executive vice president of American Spring Wire Corp. (ASW) in Bedford Heights, OH, says material prices have been affected in part by the worldwide consolidations in the steel industry, including consolidations among the North American wire rod producers. “As the consolidation continues, steel buyers will experience more pricing discipline during weak demand periods,” he says. “During these periods of lower demand, the mills are generally choosing to reduce their capacities instead of offering incentives to attract incremental business volumes.”

“Increased world steel consumption is another factor affecting material prices,” says Snyder. “As countries like China and India build their economies, they will need vastly more basic raw materials to feed their booming steel production. These materials include iron ore, scrap, zinc, nickel and whatever energy source they choose to feed their mills,” he says. “While we continue to see short-term upward and downward fluctuations in raw materials, the longer-term demand will place raw material suppliers in an enviable seller’s market.”

Moreover, the Chinese government has chosen to eliminate the 15-18% VAT rebate for all wire rods imported into the United States. “Since the Chinese steel manufacturer is no longer receiving a tax rebate from the Chinese government, the end result to a U.S. wire producer is a higher price when attempting to procure wire rods from China,” says Snyder.

Lastly, he says, “The U.S. dollar continues to weaken against the Canadian dollar, Euro and British Sterling. Due to the weaker U.S. dollar, it is no longer an option for us to procure wire rod competitively from these countries.”

ASW manufactures tempered round, shaped and flat material from 0.16” to 0.625”. Grade offerings include 1065 OTMB, chrome silicon commercial, screen wire cloth and valve-spring-quality grades. In addition, ASW makes various types of hard-drawn high-carbon flats and shapes.

Given the ongoing volatility of the material market, springmakers would be wise to continue working closely with suppliers, as well as remain aware of pricing trends for base materials, such as scrap, iron ore, nickel, chromium, zinc and molybdenum. In order to pass along material cost increases, many springmakers have worked on educating customers about the factors that govern the material market. This will become even more important should material costs continue to increase long-term.

Rita Kaufman CAE is the editor of Springs magazine and communications director of the Spring Manufacturers Institute. Readers may contact her by phone at (630) 495-8588 or e-mail at editor@smihq.org.