PULPWOOD Seventeen responding_companies cited pulpwood as a primary material in short supply. Existing timber resources are becoming more inaccessible and consequently more expensive to pulpwood producers because most of the less remote forests have been cut. Compounding the problem have been floods and adverse weather conditions that not only harm pulpwood trees but make logging operations difficult. Return on investment has diminished in recent years and producers have been reluctant to invest in the additional equipment necessary to increase output. Complicating the situation further, a severe shortage of railroad cars has made it difficult to move pulpwood from producers to consumers. Domestic price controls, coupled with dollar devaluations, have attracted foreign buyers to U.S. pulpwood supplies, thus making less of the material available to domestic users. One company reported that these problems have placed pulpwood users in a position where they are losing markets to substitutes they cannot make themselves. Because of the market pressure, pulpwood prices have doubled in the past year. If additional difficulties, such as labor shortages in remote logging areas, are encountered, price and availability of pulpwood may be a problem for several years. RUBBER Shortages of rubber, especially synthetic rubber, were reported by 18 companies. Tires, rubber hose, and neoprene are in very short supply, according to several companies. The basic cause of the shortage is the limited availability of petrochemicals. In addition, the world demand for these products has risen to the point where it exceeds the production capacity of the industry, which most users believe cannot be increased substantially for at least 18 to 24 months. SALT Nine of the companies responding indicated difficulties in obtaining salt necessary for their operations. Insufficient production capacity of salt processors has resulted primarily for three reasons: first, environmental protection laws have discouraged some companies from investing in new plants necessary to meet demand; second, in cases where environmental laws have not been a key factor, rising construction costs, brought about by high interest rates, and high operating costs have lead to a decreasing return on investment sufficient to discourage expansion of production; and third, the shortage of another primary material used in the refinement of natural salt, soda ash, has negatively affected production of salt. (Soda ash is also listed in this survey.) SILICON Eleven users reported a problem with silicon. The products that were affected to the greatest degree were iron and steel alloys, glass, and electronic equipment, especially transistors and silicon wafers. The major reason given for the shortage was the limited capacity of the industry, which could be increased over the next several years. SODA ASH Forty-two of the companies participating in the survey had difficulty obtaining soda ash (sodium carbonate). Several producers have reportedly curtailed operations over the past three years because of economic and technical problems in complying with stream purification laws. In some cases, the production of soda ash, which is a major ingredient in glass, has been curtailed by an average of one day per week. Many users have reportedly been placed on a 50% allocation by producers through 1976. A low rate of return on investment in previous years has discouraged the expansion of production capacity. Electric power curtailments, particularly in the Pacific Northwest, have also reduced the output of soda ash. A shortage of natural gas used for process heat has been another energy problem for a number of producers. Some producers report that a major problem has been the difficulty in attracting workers to remote mining areas to run their plants. New mining and refining operations are not scheduled to come "on stream" until 1976. STEEL One of the major shortages reported in the survey was steel, a material that was difficult to obtain in the desired quantities by 106 companies. Several types of steel, including stainless, castings, forgings, plate, sheet, and products are important materials problems in their own right and will be discussed separately. Lack of adequate production capacity was reported as one of the main reasons for the current steel shortage. Ostensibly because of the low return on investment, not enough profit is available for plant expansion. Because of the pressures of heavy fixed costs and poor earnings, the domestic investment in steel-making facilities was spent to replace obsolete and worn out existing facilities or to install põllution control equipment, but little or no new capacity was added, according to one source. Consequently, no significant amount of new capacity is being planned and the lead time required is four to five years. This may mean that steel will likely be short for that long and perhaps through 1980. Coupled with the lack of raw steel production capacity are price controls. Many mills were said to have discontinued the production of certain materials because their prices were frozen at low levels by the Cost of Living Council. Certain structural shapes and bars have been discontinued by some mills, while railroad wheel production has been curtailed. These problems, according to one reply, have been aggravated by the industry use of 1972 as a basis for their allocation system, a year of low production generally, and for railroad freight cars in particular. The iron shortage has also been a result of finishing limitations, an insufficient supply of coking coal, increased export of the prime ore, and scrap shortages. The normal use of steel generally results in scrap. Stamping operations produce scrap that can be used as can the scrap from old, discarded equipment. Scrap is important to the steel-making process, but with the heavy demand for products and steel exports, little scrap is being generated for the domestic market. Scrap has been especially difficult to obtain during the last six months. The lack of controls on exports of iron scrap has reportedly pushed scrap prices up 150% during the past 12 months. Furthermore, a shortage of railroad gondola cars has curtailed shipments from the producer to the consumer. This has resulted in longer lead times at secondary processing plants and a general disruption of production efficiency. The United States imported a significant portion of its steel prior to the devaluation, according to one source, but since the devaluation of the dollar it has become less expensive to buy U.S. steel, which has resulted in heavy and unprecedented demands on the steel industry for steel at less than the world market price. Many of those replying expected steel shortages to be a problem for the next five to eight years because of the time needed for new plants to come onstream. Some predicted that the supply of steel would be chronically short by 10% to 20% for at least the next several years. One source estimated that 25 million tons of new capacity would have to be installed by 1980 and 200 million tons worldwide. It was predicted that there would be a continual shortage of blast furnace and plate mill facilities for the next several years. STAINLESS STEEL Fifteen companies responding to the questionnaire indicated shortages of stainless steel for production purposes. There is no single reason for the shortage. A decrease in the supply of available nickel has had an adverse effect on the production of stainless steel. Coke, which is another primary material in short supply and is used in the manufacture of stainless steel has also slowed production. Industry leaders have reportedly been reluctant to increase mill capacity for a number of reasons. Until the recent devaluations of the dollar, competition from foreign producers of steel made it unprofitable and unnecessary for American manufacturers to invest in plant and equipment. Furthermore, there is a possibility that the flow of chromium from Rhodesia, a major supplier, could be interrupted. The high cost of pollution control devices has also discouraged producers from committing company funds to expansion. The demand for stainless steel could increase in the future if emission control systems on automobiles require catalytic converters. According to the respondents, price and delivery problems are expected to continue indefinitely. SUGAR Nine companies in the survey indicated difficulty in obtaining sugar. Labor problems in Hawaiian cane areas and in West Coast refineries have reduced the output of refined sugar. Adverse weather conditions plus shortages of freighters and railroad cars to ship raw sugar to refineries have contributed to the shortfall. All of these conditions have forced the price of sugar upward as much as 500% and have caused industrial consumers to switch to substitutes. Corn syrup is now being used by many industries, including breweries, in lieu of sugar. This conversion has taken place to avoid the higher prices created by the shortage of sugar. Corn sweetener manufacturers, however, are diverting their already tight supplies of corn into more profitable products such as corn starch. Synthetic substitutes such as isomerose are beginning to be used to take up the slack in supply. Use of this substitute is expected to increase substantially by 1976. Beets, also a source of sugar, are in short supply. This shortfall is attributed to higher prices of agricultural products such as fertilizer and farm equipment. SULFUR Three of the companies surveyed reported shortages of sulfur. The shortage is somewhat unusual in that it is not one of production capacity but rather is totally one of transportation. The problem results from a lack of railroad tank cars in which the sulfur is shipped and has become critical in some cases. The lead times for liquid sulfur have lengthened appreciably and prices have risen significantly. The energy crisis has also been a factor in that fuel needed for Frasch mining and for refining and processing has not been available in the desired quantities. The expanded use of sulfur in the manufacture of fertilizer and sulfuric acid have added greatly to demand, but new production plants are expected to be operational soon, especially in Canada, that are likely to meet those additional requirements. TIN Tin was mentioned as a materials problem by 16 companies in the survey. Most of the tin used in the United States is imported and the shortage of fuel oil has made it difficult for shipping companies to maintain import schedules. In addition, the world demand for tin has increased substantially, largely because of the boom in electronics. The shortage of tinplate, one company reported, may significantly reduce the seasonal food packs in 1974. TITANIUM Thirty-one of the companies surveyed indicated difficulties in procuring titanium. Demand for this primary material has increased but production has not kept pace. In some cases, costs have curtailed expansion of production facilities because of pollution control requirements imposed on the industry. Japanese producers, in particular, have reduced output, due to environmental controls regarding production of chlorine used in the manufacturing process. In many cases, the profit squeeze has caused producers to switch to related products which do not violate environmental controls and which have higher profit margins. Most of the companies indicated that shortages will continue for at least five years, at which time the industry should have expanded sufficiently to meet market demands. TUNGSTEN Tungsten was reported short by only two of the responding companies. One reason given for the shortage was that high costs have limited capacity and it was thought that the long lead times and high cost of money would continue to hold down production. Because of the constraints on domestic production, most tungsten ore will continue to be imported. ZINC Zinc was reported in short supply by 44 of the companies that replied to the survey. According to one company, the annual smelter production of zinc dropped precipitously from 1,400,000 tons a few years ago to only 600,000 tons this past year. This shortage was attributed to the closure of marginally profitable smelters because of stringent environmental protection laws. The shortage of zinc was reported by many companies to be a domestic problem rather than an international one. The world supply and demand for zinc were described as being generally in balance, although the domestic demand for zinc is currently more than double the domestic production capability. This has apparently forced many buyers to look to foreign markets to satisfy their requirements and to pay prices of 65 cents to 85 cents per pound versus the domestic price of 35 cents per pound. A U.S. duty on imported zinc further inflated the price of imported zinc. One consequence of this price situation has been to encourage exports of domestic zinc to foreign markets where it commands a premium price. Another consequence has been to discourage zinc imports, which are desperately needed by domestic smelters to maintain efficient operations because in many cases the domestic supply is not enough to keep the smelters open. When a smelter is closed, many of the zinc mines that feed ore to that smelter are often forced to close also. This in turn reduces the amount of domestic zinc available if other smelters are not available to absorb the displaced production. Many of the respondents estimated that the end of price controls had increased producers' earnings to the point where they will invest in new facilities. Some companies have already planned new mining and smelting operations that should increase the domestic capacity about 50% within the next two to three years, according to one source. In addition, new Canadian and other foreign facilities are being planned which will help forestall a long range world shortage of zinc. |