Global Steel Prices are Exploding

Dear customer:

For the last several months we have seen rising prices in some electrical and telecommunication products. In addition, Global steel prices are exploding, and the trend is expected to continue in the near future.

Many factors, such as higher fuel cost and raw material shortages, contribute to general price increases as well as rising raw material costs and their limited availability.

One problem currently facing the North American steel industry is the availability of coke, a converted form of coal used in traditional steel-making furnaces. China, formally one of the world's leading exporters of coke, now consumes its supply to produce steel, limiting coke for export. Another issue of great importance is the shortage and high price of scrap steel. Steel is the most recycled of all materials, with an entire class of newer steel companies depending on scrap as their primary source of raw material. In addition, the Fareast continues to buy up the scrap at a premium. In fact, scrap prices are twice as high as they were in 2003. The United States used to be the world's dominant market for steel but China now unquestionably owns that distinction. China has dominated much of the world's increases in steel production and its production has rose more than 7% a year throughout the nineties and more than 20% annually since 2001. Global steel production has increased by 25% in the last five years but raw materials capacity continues to fall behind. More importantly, global steel production has increased 25% in five years, but raw materials capacity has not kept pace.

As long as there are shortages in raw materials, scrap steel and increased demand for steel products, we can expect to see a continuation in higher cost for electrical products made with steel.

Standard Electric will continue to monitor the marketplace and deliver quality products at the best available price and make every effort to maintain a level of inventory to insure a continuous supply. Unfortunately due to our double digit cost increase we are forced to increase pricing.