As of May 3, 2021
To our Valued Customers,
We know that the current material shortages in the market are causing you significant problems. We are seeing unprecedented demand levels in most markets¹ and it is very difficult for us to get material. There are many factors that are causing the problems in supply. Namely:
- The pandemic continues to have a significant impact on supply. Many mills continue to operate below capacity because of labor shortages tied to COVID-19. The same COVID related issues apply to the ports as there is high absenteeism by longshoremen. In addition, we just learned that melting mills in India have been ordered to restrict their use of oxygen in their melting process as this oxygen is needed for the hospitals.
- There is a labor shortage. We are seeing it in many places. It is very difficult to find and retain employees. This is causing the mills to operate at lower production levels. As discussed below, it’s causing problems in the movement of material.
- Our sources continue to struggle to get supply. Take the example of the strip rerollers in the USA. ATI is on strike. This increased demand at NAS. As a result, we are told that NAS put many customers on allocation as they did not have enough supply for everyone. They also shifted supply from wire rod to strip. This limited supply for the wire drawers.
- There are major disruptions in the delivery of materials from overseas. Foreign mills face several challenges. There are severe shortages in containers, and this causes a delay in loading the material for the ports. Once they get material to the port, they are being told that the ship they had expected to carry their goods is already full and they will have to wait for the next ship. Once the material is on the ship, it is often delayed entering the port. Once in the port, it is delayed being unloaded. It is then delayed being picked up because there are truck and trailer shortages. (There are also driver shortages which delay the material moving from the ports to us.) The recent issues at the Suez Canal with a ship blocking the canal for several days made a bad situation worse.
- The difficulty in receiving foreign material has put more demand pressure on domestic mills. As mentioned above, there are shortages in supply to the domestic mills. They are also seeing very high demand exacerbated by the difficulty of receiving foreign material. When you add in the labor issues they are having and the pandemic problems, the mills are experiencing unprecedented demand levels.
- Mill delivery dates for new material have been extended out by months instead of weeks. We are seeing a very significant extension in mill lead times. In fact, some mills have stopped taking orders on some products because they do not know when they will receive their reroll or redraw stock.
We continue to do everything possible to find and deliver material. For example,
We are looking worldwide for all potential sources. Unfortunately, this is very difficult. All the mills are at capacity. Other distributors also have limited stock availability.
We are working overtime to get product out the door once it is at Gibbs. Unfortunately, we have faced the same issues regarding our labor force being impacted by COVID-19. We think the worst is behind us. But we still are seeing individual cases. We are also finding the same difficulty as other employers in finding employees.
We have greatly increased the material we have on order. We have a very significant amount of material on order. As pointed out above however, we can not be entirely sure when the material will arrive.
We are often asked to try and expedite material at the mills. This is very problematic. If we expedite one order, it means that other others then get pushed back. We have also seen that it has a multiplier effect. I.e., moving orders creates more chaos in the system and this slows down production for all orders. However, we are not naïve. We are in constant communication with the mills to make sure our orders are not being pushed back.
In addition, the ports will not expedite container movements for metals.
When will it get better? We do not know. As we write this letter, we think that the current situation will extend through the summer. Mills are telling us that they still plan to do their annual shutdowns. They tell us these shutdowns are needed to do maintenance on the mills. We just learned that China is going to reinstate export tariffs. This will increase the price of Chinese material, which will further shift more demand to domestic mills.
We will keep you updated as we learn more information.
We know that this is a very difficult period for you as it is for us. We will continue to do everything reasonably possible to get your material in a timely manner.
Our best regards,
William J. Torres President
¹This has also resulted in a period of very significant price increases. In addition, the increases from the ocean carries and freight lines are also unprecedented. Unfortunately, we think it will get worse in the coming months.