Fastener + Fixing Magazine

The dictionary definition of a perfect storm is “a rare combination of individual circumstances that together produce a potentially catastrophic outcome”.Now, this statement comes up every day in the fastener industry, so here at Fastener + Fixing Magazine we thought we should explore whether it makes sense.
The backdrop, of course, is the coronavirus pandemic and everything that comes with it.On the bright side, demand in most industries is at least growing, and in many cases soaring to near-record levels, as most economies recover from Covid-19 restrictions.May this be the case for a long time and those economies still hard hit by the virus begin to climb the recovery curve​​​.
Where this all starts to unravel is the supply side, which applies to just about every manufacturing industry, including fasteners.Where to start?Steelmaking raw materials; availability and cost of any grade of steel and many other metals?Availability and cost of global container freight?Labor availability?Austerity trade measures?
Global steel capacity is simply not keeping pace with the surge in demand.With the exception of China, when Covid-19 first hit, steel capacity must have been slow to come back online from widespread shutdowns.While there are questions about whether the steel industry is pulling back in order to push prices higher, there is no doubt that there are structural reasons for the lag.Shutting down a blast furnace is complicated, and restarting it takes more time and effort.
This is also a prerequisite for sufficient demand to maintain a 24/7 production process.In fact, world crude steel production increased to 487 metric tons in the first quarter of 2021, about 10% higher than in the same period in 2020, while production in the first quarter of 2020 was almost unchanged from the same period last year1 – so there is a real Production growth.However, this growth has been uneven.Output in Asia grew by 13% in the first quarter of 2021, mainly referring to China.EU production rose 3.7% year-on-year, but North American production fell more than 5%.However, global demand continues to outstrip supply, and with it a price surge.Even more disruptive in many ways is that delivery times were initially more than four times as long, and now far beyond that, if availability does exist.
As steel production has increased, the cost of raw materials has soared to record highs.At the time of writing, iron ore costs have surpassed the record level of 2011 and rose to $200/t.Coking coal costs and scrap steel costs have also risen.
Many fastener factories around the world simply refuse to take orders at any price, even from regular big customers, because they can’t keep the wires safe.Quoted production lead times in Asia are typically 8 to 10 months in the case of an order being accepted, although we have heard some examples of more than a year.
Another factor that is increasingly being reported is the shortage of production staff.In some countries, this is the result of ongoing coronavirus outbreaks and/or restrictions, with India almost certainly being hit the hardest.However, even in countries with extremely low infection levels, such as Taiwan, factories are unable to hire enough labor, skilled or otherwise, to meet growing demand.Speaking of Taiwan, anyone following news of a global semiconductor shortage will know that the country is currently suffering from an unprecedented drought affecting the entire manufacturing sector.
Two consequences are inevitable.Fastener manufacturers and distributors simply cannot afford the current exceptionally high levels of inflation—if they are to survive as a business—they have to incur massive cost increases.Isolated shortages of certain fastener types in the distribution supply chain are now common.A wholesaler recently received more than 40 containers of screws – more than two-thirds were backordered and it is impossible to predict when more stock will be received.
Then, of course, there is the global freight industry, which has been experiencing severe container shortages for six months.China’s rapid recovery from the pandemic sparked the crisis, which was exacerbated by demand during the peak Christmas season.The coronavirus then affected container handling, especially in North America, slowing the return of boxes to their origins.By early 2021, shipping rates had doubled—in some cases six times what they were a year earlier.By early March, container supply had improved slightly and freight rates softened.
Until March 23, a 400m long container ship stayed on the Suez Canal for six days.This may not seem that long, but it could take up to nine months for the global container freight industry to fully normalize.Very large container ships now sailing on most routes, although slowed to save fuel, may only complete four full “cycles” a year.So the six-day delay, coupled with the inevitable port congestion that accompanies it, makes everything out of balance.Ships and crates are now misplaced.
Earlier this year, there were protests against the shipping industry limiting capacity to increase freight rates.Maybe so.However, the latest report shows that less than 1% of the global container fleet is currently idle.New, larger ships are being ordered – but will not be commissioned until 2023.Vessel availability is so critical that these lines are reportedly moving smaller coastal container ships to deep sea routes, and there’s a good reason – if Ever Given isn’t enough – to make sure your containers are insured.
As a result, freight rates are rising and showing signs of surpassing the February peak.Again, what matters is availability – and it doesn’t.Of course, on the Asia to Northern Europe route, importers are told that there will be no vacancies until June.The voyage was only cancelled because the vessel was not in position.New containers, which cost twice as much due to steel, are already in service.However, port congestion and slow box returns remain a major concern.The worry now is that peak season is not far away; U.S. consumers have received an economic boost from President Biden’s recovery plan; and in most economies, consumers are pent-up in savings and eager to spend.
Did we mention regulatory implications?President Trump has imposed U.S. “Section 301″ tariffs on fasteners and other products imported from China.New President Joe Biden has so far opted to maintain the tariffs despite the WTO’s subsequent ruling that the tariffs violated world trade rules.All trade remedies distort markets—that’s what they are designed to do, though often with unintended consequences.These tariffs have resulted in the diversion of large U.S. fastener orders from China to other Asian sources, including Vietnam and Taiwan.
In December 2020, the European Commission initiated anti-dumping procedures on fasteners imported from China.The magazine cannot prejudge the committee’s findings — a “pre-disclosure” of its interim measures will be published in June.However, the existence of the investigation means that importers are well aware of the previous tariff level of 85% on fasteners and are afraid to place orders from Chinese factories, which may arrive after July, when the temporary measures are scheduled to be implemented.Conversely, Chinese factories refused to take orders out of fear that they would be cancelled if/if anti-dumping measures were imposed.
With U.S. importers already absorbing capacity elsewhere in Asia, where steel supplies are critical, European importers have very limited options.The problem is that coronavirus travel restrictions have made physical audits of new suppliers nearly impossible to assess quality and manufacturing capabilities.
Then place an order in Europe.Not so easy.According to reports, European fastener production capacity is overloaded, with almost no additional raw materials available.Steel safeguards, which set quota limits on imports of wire and bar, also limit the flexibility to source wire from outside the EU.We’ve heard that lead times for European fastener factories (assuming they’re ready to take orders) are between 5 and 6 months.
Summarize two ideas.First of all, regardless of the legality of anti-dumping measures against Chinese fasteners, the timing will not be worse. If high tariffs are imposed as in 2008, the consequences will seriously affect the European fastener consumption industry.Another idea is to simply reflect on the real importance of fasteners.Not just for those within the industry who love these microengineerings, but for all those in the consumer industry who—dare we say—often underestimate and take them for granted.Fasteners rarely account for one percent of the value of a finished product or structure.But if they didn’t exist, the product or structure simply couldn’t be done.The reality for any fastener consumer right now is that continuity of supply overwhelms costs and having to accept higher prices is much better than stopping production.
So, the perfect storm?The media is often accused of being prone to exaggeration.In this case, we suspect, if anything, that we will be accused of underestimating reality.
Will joined Fastener + Fixing Magazine in 2007 and has spent the past 14 years experiencing all aspects of the fastener industry – interviewing key industry figures and visiting leading companies and exhibitions around the world.
Will manages content strategy for all platforms and is the guardian of the magazine’s renowned high editorial standards.