Last time, we talked about how U.S. steel producers were increasing prices monthly and how some manufacturers were beginning to inventory steel to control costs. Steel producers, who last year guaranteed prices for 12 months now were not even guaranteeing delivery much less setting prices out 12 months.
We talked about how price increases were battering aftermarket manufacturers and how it was quite possible that dealers would see price hikes this season.
That’s still the case in many instances, but the situation may be improving.
OEMs staying competitive
Only one OEM, Polaris Industries of Medina, Minn., has announced a price hike. Polaris placed a $50 surcharge on each adult machine and $25 on each youth machine, effective April 26.
The company cited increased costs for commodities such as steel, aluminum and copper as well as petroleum-based products such as plastic.
“All of the raw material costs are going up very quickly,” said Polaris’ Marlys Knutson at the time of the price increase.
Other OEMs we contacted said they were seeing increases in commodity prices and shipping costs, as well, due to the increase in oil prices. None of the other major OEMs we spoke with, however, said they were planning price increases.
Also, more aftermarket companies are talking about passing on price increases because it’s tougher for them absorb all the increases.
So, why is the situation improving?
China pushes steel production
On the one hand, commodity shortages are being blamed, in part, on China’s booming economy and its push to develop its manufacturing capabilities.
That construction boom is pulling building commodities such as steel, copper, aluminum and cement out of other markets.
But some experts now are saying that when all of China’s steel production comes on line there could be a worldwide surplus of steel. That could cause steel prices to drop sharply.
China’s economy is growing at a rate of 9% annually, and it consumes twice as much steel as the U.S., though its economy is only one-eighth the size, reports the New York Times.
If that growth slows, something the Chinese government is trying to make happen, much of the steel used in construction would be available for export. “My prediction is, frankly, we’re going to be swimming in steel in the next year to 18 months,” a major Chinese steel buyer told the Times.
If the Chinese demand for other commodities slows the way that steel could, that would help prices all across the board for powersports manufacturers.
Even oil prices could improve.
Crude oil futures fell May 21 as OPEC (Organization of Petroleum Exporting Countries) began talking about increasing its oil production. Even if production were increased soon, the new oil wouldn’t arrive in the U.S. until late summer, so don’t look for oil and gas prices to drop anytime in the next few weeks. The point is, however, that price increases related to petroleum could level off by early fall, if analysts are correct
One final point: The interest rate hikes that the Federal Reserve is expected to make this summer to keep the lid on new inflation could make it more expensive to do business.
And for California companies, especially, the outrageous increases recently in worker’s compensation insurance and health insurance have to be passed on, too. There’s no way that companies can absorb all of these cost increases and stay in business.
The bottom line: Steel price increases may slow and even drop by early next year, and prices of other commodities used by powersports manufacturers could stabilize as well. Even oil-related transportation and manufacturing costs could settle down, too.
However, look for prices of manufactured goods all across the economy to continue rising this year, even if those increases are only moderate ones. psb
Copyright 2004 Powersports Business