Cast iron – it’s part of what makes good tools good. Unfortunately for power tool buyers rising prices in iron could have an enormous impact in power tool prices. Steel City’s granite-topped table saw is starting to make a little more sense now ;)
Anyhow, this little article will first look at some of the forces driving iron prices up. And then I’ll come clean with the identity of the CEO of a major power tool company who tipped me off…
What’s Driving Iron Ore Prices:
First off, I’m no economist (or metallurgist for that matter). International markets seem like soap operas to me and the international iron market is no exception. There’s no shortage of drama. In a nutshell then it appears that there are two major factors driving iron prices up (and therefore power tool prices).
1) Rising Cost of Freight
Because China imports so much iron it relies heavily on freight. A recent article in CNNMoney stated that freight prices surged 10% last week alone. One analyst speculates this could increase Australian miners’ iron prices by as much as 85% (apparently China buys lots of Australian iron… I had no idea).
One expert noted here:
…there [are] too few new ships entering the market to meet rising demand meaning the cost of hiring the largest vessels had almost doubled in the last year to US$200,000 a day.
I’d also venture the assumption – though I’ve not seen it written in any of the financial sources I’ve read – that oil costs have driven freight costs higher.
Rising Freight Forces China To Accept Higher Iron Ore Prices
Rising Freight Costs Increase Inflationary Pressure on Foodstuffs, Grains and Commodities
2) Increased Chinese Demand for Iron Ore
China’s drive to industrialize means they’re using far more iron than ever before. They can’t produce enough to keep up with their own demand. Chinese demand has also sent copper prices soaring. If you’re in construction you may have seen an increase in copper theft in recent years (you also might want to check out 7 Ways to Stop Copper Thieves).
The cost of freight prices is also impacted by the increased demand:
Peter Norfolk, research chief at ship broker Simpson, Spence and Young, said: “The main reason for the [freight price] surge is demand for iron ore in China but consumption of commodities is high across the board.”
3) Skyrocketing Spot Prices
Further, there are allegations from Chinese steel mills that the major Brazilian iron producer Rio Tinto has chosen not to fulfill contracts so that it can sell its iron on the “spot” market, where prices are skyrocketing.
Here you can see rising spot iron prices:
2007-01 75 USD per metric ton or tonne, 2204.83 pounds.
2008-02 196 (mostly contracts with Chinese firms)
data from: Iron Ore Prices.
So… Who Tipped Me Off?
Well I didn’t wake up this morning thinking I’d write a ToolCrib article about the international iron market. What happened is that I was cruising WoodNet and found a recent post titled: Any rumblings on Griz Summer Sale- PapaGrizzly ??? In case you don’t know, Papa Grizzly is Shiraz Balolia, the CEO and owner of Grizzly Tools. He’s also a luthier.
Here’s the question:
“I haven’t heard or seen anything yet and if I recall correctly their Summer Sales usually starts the middle of May. Wondering if they are going to have one this year with the way the economy is and the ever weakening dollar.
PapaGriz what is the word?”
Here’s Mr. Balolia’s answer:
For the first time in 25 years no summer sale this year. We have been hit with huge, huge price increases and have been absorbing them quietly.
The exchange rate is actually just a small part. Here’s an article showing what is happening to the price of iron ore, and it’s not stopping anytime soon.
Bad things are going to happen to machinery prices next year!
The thread again: Any rumblings on Griz Summer Sale- PapaGrizzly ???
If the CEO of Grizzly says that machinery prices are going up, then I think that’s a pretty solid indicator. The moral of this story is that if you want to buy a new power tool, the time to do it is sooner rather than later. Now, I’m not saying you should buy Grizzly, but I can definitely say that there’s a pretty high opinion of them in the major online woodworking forums.
Here are some articles in which we discuss Grizzly:
Grizzly Tools – What is Your Opinion? (links to forum threads on Grizzly + 32 responses from visitors)
Top 5 Woodworking Tool Companies with the Best Customer Service (Grizzly ranked 3rd)
What’s the Best Band Saw? Benchtop vs. 14 Inch vs. 17 Inch vs. 18 Inch
A Table Saw Buying Guide: Benchtop vs Contractor vs Cabinet vs Hybrid
Grizzly G5013 17? Band Saw vs. Jet JWBS-18X 18? Band Saw
Cyclone Dust Collectors: Gorilla vs. Clear Vue vs. Grizzly
Grizzly 1023 vs. Delta Unisaw and Craftsman Hybrid
$600 For New Contractor Saw: Bosch vs. Rigid vs. Grizzly vs. Jet