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Steel Industry Update

June 17th, 2016
To: All Pioneer Distributors
From: Mitchell Dorf
Re: Steel Industry Update


I wanted to take a moment to notify you about the current state of steel.  During the past 6 months, the price of steel has increased dramatically and has yet to level off.  We felt that given the performance of many of the domestic mills in 2015 (US Steel lost over $1 Billion) a price increase would be forthcoming.


During my nearly 4 decades of steel purchasing, there have always been rules and indicators that create an environment for increases. For the first time in recent memory, steel prices have risen, but scrap has not kept pace.  In general, increases are usually stimulated by either raw materials, scrap prices, supply or demand sides and sometimes all of the above.
On the surface, the current situation seems to be primarily supply side driven. Many foreign importers (China, etc.) have reduced or agreed to reduce their Sheet steel order intake from the United States due to the fear of tariffs originating from Anti-Dumping litigation.  This has placed the supply burden on the domestic steel mills here in the United States. To complicate matters, many of these domestic mills have decided to reduce their output due to maintenance issues (obviously timed!) as well as economic issues as the demand side has not been as robust.


Which brings us to where we are today. During these past months we have seen some unprecedented moves by the steel industry: Cancelling orders after being acknowledged, reducing the tonnage available from orders already placed and demanding as much as a 15-20% increase after purchase agreements were already finalized. We have also seen other construction steel pricing escalate quickly, most notably, steel studs where surcharges have already been implemented. Unfortunately, no matter how you view it, the reality is that steel prices are up 35-50% depending on the material and gage, with Galvaneal seeing the largest increases. There is not much we can do to prevent these surges in pricing. The good news is that supply side increases usually don’t last as long as demand side, so hopefully we will see some leveling off of prices and some normalcy in the market place during the next six months.


Currently, we are continuing to analyze the data to determine when a price increase may be necessary.  We will keep you updated on that possibility and provide as much notice of a price increase as possible.  We will also be reviewing quotes, escalators and whether or not price protections have expired, as we closely monitor developments in the Steel Industry.  We ask that you communicate where price protection is required and we will try to protect you the best we can.


Lastly, as many of you know, we have been hard at work on a new, more comprehensive price book. The new book does incorporate many changes in the way we structure base pricing and adders, as well as what we stock in our finished goods inventory.  This change is primarily driven by our new product configurator, which is designed to reduce upfront processing and eventually result in better lead times when completed.  The new Price Book will contain a number of price increases as well as reductions more closely tied to costs.  The change to a more option oriented structure is necessary if we are to fully implement and integrate our new configurator based software.  In the end, there should be an abundance of options in custom and stock that we hope will enhance your purchasing scenarios.  We realize the new structure will be a departure from previous versions and that many of you will have questions.  We are considering a number of training tools to assist in this process and will work with each of you to help you during this transition.


We understand that price increases can be complicated and are not to be taken lightly given the nature of our business.  We believe strongly in working together with you, our distributors for the common good of all our companies and feel fortunate to have each of you as customers.  We remain committed to manufacturing high quality commercial products here, with American labor, and look forward to continuing our alliance for the future.



Mitchell Dorf
President
Pioneer Industries
Office: 201-933-1900
Fax:    201-933-9580
www.pioneerindustries.com

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