Higher lift cams may come at a higher price: Crane Technologies is feeling the pinch of the recently imposed steel tariffs - The Supply Side - U.S. domestic steel industry protected against dumping of cheap imported steel - Government Activity - International Pages - Brief Article - Statistical Data Included

Automotive Industries,  Sept, 2002  by John Peter

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In case you haven't been paying attention, there is a steel war going on in the United States.

The first shot was fired by President Bush an March 5th of this year when he imposed tariffs on imported steel. The Three-year steel safeguard program was intended to stop the dumping of cheap imported steel in order to give the domestic steel industry a chance to restructure and get back on its feet But the effects of the tariff were felt immediately by automotive suppliers who, already working under very low profit margins, couldn't see any way to absorb the 30 percent price increases that the domestic steel producers were demanding.

This summer the Motor and Equipment Manufacturers Association (MEMA) wrote a letter to President Bush expressing their concerns that the safeguard program not only jeopardized their futures, but also had the long-term effect of driving jobs out of the country. The war or words came to a head last month when Metaldyne Chairman and CEO Tim Leuliette lashed out at both the OEM'S and the domestic steel industry for putting the supply chain between the proverbial rock and a hard place. Bush wasn't fazed until the European Union and Japan filed cases with the World Trade Organization and proposed retaliatory tariffs on $350 million worth of goods from the states that the President was trying to please by fulfilling campaign promises with the tariffs program. In late August, much to the dismay of the United Steel Workers of America, President Bush added another 178 exclusions to a list that now numbers 727. The move was welcomed by the European Union. But it was not enough, the EU continues to move forward with its plan to raise tariffs on U.S. goods.

Still with any war it's always the guy in the trenches that suffers the most.

Paul Gervy is vice president of purchasing for Crane Technologies--for gear-heads, that's the company that makes Crane Cams. Headquartered in Daytona Beach, FL, right across from The speedway, the company also makes automotive engine valve-train components, like rocker arms, roller tappets and pushrods for the aftermarket and occasionally, Gervy says, for an OEM.

Crane hasn't experienced some of the high tariffs like other parts manufacturers because they're a turning operation, not a stamping operation. (They turn bar stock into cams and other parts.) But Gervy's company has been affected by the tariffs.

"We've definitely felt it from the price increase aspect" says Gervy. "We've seen a 6 percent increase in steel prices due to what's happened in the last six months."

Gervy's problems aren't only financial. He's experienced intermittent shortages in the last six months as well. Crane uses small diameter bar stock--a less used size. Throughput time is greater for manufacturing small diameter than larger diameter. The company has to draw it down several times to get small stock. Crane's suppliers say that back orders on larger diameter bar stock exceeds the need for them to make smaller diameter stock, which forces Gervy to shop for steel on the spot market, at a premium of 25 percent to 30 percent.

"My general feeling," says Gervy," is that prices on the spot market have increased because of the tariff."

He says he also seen a 15 percent to 20 percent increase in the price of scrap steel--a prime commodity of steel--over the last three months-and it's predicted to go higher. Prices of electrodes have risen as well.

Interestingly enough the only steel supplier that hasn't raised prices is the only one directly affected by the tariff.

"We're buying some specialty steel tubing from a German company who does an excellent job in controlling the quality of the product," says Gervy. "They haven't raised their prices. As a matter of fact they've held prices for all of their customers in the U.S."

As far as the tariff is concerned, Gervy says, "they're picking it up."

Some say the simple solution for an aftermarket company facing an increase in raw material prices would be to raise their pricing to cover the increase. Gervy says it isn't that easy.

"Our major customers are warehouse distribution centers like Jegs and Summit They publish a catalog listing prices that cover a certain amount of time," Gervy says. "We basically eat the increase until they can republish their catalog."

"If we got hit with an industry wide increase that affected the whole market" adds Gervy, "we'd have to do something because we couldn't absorb that kind of impact"

Gervy is in the process of working on Cranes budget for 2003.

"We're trying to get as much info as we can from our supply base as we get ready to do our budget for next year," Gervy says. "We've asked for forecasts. They're projecting another increase around the first of the year."

"As we talk to our major suppliers of steel," Gervy says, "they're speculating that this thing isn't over yet."

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