In response to the ongoing steel crisis, the Association of Equipment Manufacturers (AEM) and two other industry associations involved in the off-road equipment manufacturing industry joined together to conduct a study that examines in detail the causes of price increases, both cyclical and permanent, and the impact of these factors on agricultural- and construction-related machinery makers.
This study follows a November 2004 survey of AEM members on the issues of steel pricing and availability.
The study, “Steel Markets: Causes and Factors Affecting Steel Prices in the Near and Medium Term,” was recently released to members of the three trade groups: AEM, Farm the Equipment Manufacturers Association (FEMA) and the North American Equipment Dealers Association (NAEDA). The study was prepared by the economics consulting firm Global Insight.
The off-road equipment manufacturing industry is a major steel consumer and, in 2004, prices of almost every type of steel doubled, with several recording price increases of more than 250 percent.
“The steel problems our industry currently faces are the result of a ‘perfect storm’ of issues,” noted the associations. “The boom in China, the lack of raw materials, a weak U.S. dollar and the 2002 ‘Section 201’ steel tariffs have all combined to greatly strain the steel industry. By working together on a study such as this, we hope that AEM, FEMA and NAEDA can answer many of the questions our membership has and provide a better understanding of the issue for our machinery customers and our nation’s policymakers.”
The AEM-FEMA-NAEDA steel study cites several principle reasons for the rapid increase in steel prices. As expected, the most important factor identified was explosive growth in the Chinese steel industry that strained global supply and lifted prices worldwide for steel-making raw materials. Another factor the study singled out was a decline in steel prices over the two previous decades that led to U.S. underinvestment in mill maintenance and new mines/facilities for raw materials.
The depreciation of the U.S. dollar, tariffs on imported steel, increased prices over for scrap and stronger industrial production in the U.S., Europe and Japan were also singled out. In addition to China, the study then examined other global short- and medium-term factors that could affect future steel prices, including probably growth in India. The study also looked at policy factors and their possible effects on steel prices. These included further devaluation of the dollar, continued steel industry consolidation and various steel trade protection measures.
The full report is now available on the AEM Web site by clicking here.