Newton, Mass.—Rising steel prices, surcharges and possible shortages are creating havoc for industrial distributors and manufacturers, and there appears to be no end in sight.

In March, for example, The Timken Co. announced price increases on its steel bar products. Non-contract prices increased by $30 per ton for all sizes and grades of carbon and alloy steel bars, effective with April 4 shipments.

"Scrap concerns are well documented throughout the industry, and our surcharge system has been effective in recovering some of these cost increases. Escalating costs in our industry have permeated all other consumable items as well, and this base price increase is necessary to address those costs," Robert N. Keeler, Timken's director of steel sales for North and South America, said in a prepared statement.

Purchasing magazine, a sister publication of INDUSTRIAL DISTRIBUTION, reports that market prices are rising because of cost increases for steel scrap, iron ore, pig iron and coke—the residue left after coal is distilled. The magazine reports that though demand is awakening from a three-year slumber, steel hasn't been available in sufficient quantities this year, and the end result is much costlier shipments. Some distributors say that fastener prices have increased up to 35 percent as a result.

Steel is used in making bearings, fasteners, shelving, construction materials and a number of other products that distributors sell.

Tom Stundza, executive editor of Purchasing, said that hot-rolled sheet steel, which cost $350 per ton in January, rose to $585 per ton in April.

China is one reason for the surge in prices. Stundza, an expert in steel pricing issues, said China's demand for steel has exploded as it builds infrastructure for the Beijing Summer Olympics in 2008, as well as for its own internal consumption. Chinese steel consumption rose 30 percent last year, to 250 million metric tons, or one-third of the world output for rolled steel.

To feed their mills, Chinese producers have been scouring the world for scrap steel, causing scrap prices in the United States, the world's largest supplier, to rise by as much as 80 percent over the past year. Steel costs 30 percent more on average since early January, and further price increases are expected.

Stundza said some supply shortages are occurring in the United States for several reasons: delayed delivery of orders and low inventories at the service centers; a seasonal pickup in demand by consumer and commercial manufacturing firms; an unexpected demand from such metalworking segments as machinery and off-road equipment; and a resurgence in demand by construction firms involved in non-residential construction projects.

Some U.S. and overseas manufacturers say that plants could face shutdowns if the problems persist.

Truck body and equipment manufacturers report they are going from a situation where steel was readily available, to one in which long-term steel supply contracts and guaranteed pricing have been eliminated.

In Truck Equipment News, a newsletter published by the National Truck Equipment Assn., a member reported that its guaranteed price on a blanket order for steel was recently cancelled. The company, which makes truck equipment and parts, was told there would be a surcharge of 15 percent to 20 percent.

Some big customers are challenging higher spot prices and, especially, the surcharges. General Motors, for example, the largest steel consumer in the United States, is rejecting invoices from steel suppliers that include such "non-negotiated extra charges" as mill surcharges and freight premiums. Smaller companies don't have the clout to combat such charges.

Jack Cahill, president of bearings and power transmission distributor Kaman Industrial Technologies, said the steel problems are severe, but not as bad as what occurred during the recession of 1970-71, when prices skyrocketed and shortages resulted.

Still, some companies are concerned enough about the steel problem that they are double-booking product "so they'll have it when they need it," pointed out Craig Ketchum of Red Man Pipe & Supply, a large distributor of pipe, valves and fittings.