Jeffrey Nayhouse needs nerves of steel to open his mail box. Each day brings the owner of Allegheny Fence letters such as the one on Feb. 10 from Master Halco, which sells steel fencing to his Hazelwood company: Throw our price list out the window.

	Tony Tye, Post-Gazette Jeff Nayhouse, the owner of Allegheny Fence, is facing heavy price increases for steel wire and tubing. Click photo for larger image. Steel chart See a chart that shows steel prices for the past four years.

"Due to the existing environment, we cannot print pages as quickly as the [price] increases are taking effect. ... We have no idea when pricing and availability will stabilize," the company warned.

The story's the same at Bob Roberts' mail box. "I get a letter almost every day from a steel company or two steel companies or three steel companies we deal with and every letter is the same," says Roberts, vice president of Frank Roberts & Sons, a Punxsutawney building materials distributor.

"If it's steel, it's up and it's up significantly and it sounds like it's going be to up for the entire building season."

Rarely has the cycle in the cyclical steel industry swung with such abandon. Just a few years ago, prices were at 20-year lows, a phenomenon steelmakers blamed on 200 million tons of excess steelmaking capacity worldwide.

Since the first of the year, however, prices for steel products Nayhouse and other steel buyers rely on have jumped 30 percent or more. The chief reasons are the devalued U.S. dollar, frenetic consumption in China and skyrocketing prices for steel scrap and other raw materials.

Steel bar used to reinforce concrete has gone up "at least 50 percent since December," Roberts says. A box of nails that cost $14 or $15 dollars a few months ago now costs $24.

After being hit with back-to-back price hikes of 7 percent at the beginning of the year, Nayhouse was notified of another 15 percent increase last week. Availability has also become even more of an issue, as Nayhouse found out in a Feb. 12 letter from Richard's Fence of Akron, Ohio.

"The time for eloquent price increase letters is over," wrote vice president Bill Peterson. "We cannot get any strand wire until May and our supplier can not even give me a projected cost."

Other buyers whose orders are being rejected say they are facing the severest steel shortages since the 1970s.

"Some people I've talked to said it wasn't this bad back then," says Mark Magno, vice president of marketing for Wheatland Tube, one of Nayhouse's suppliers.

Wheatland has reduced production at its plants in Mercer County and nearby Warren, Ohio, to four days a week because it can't get enough steel to convert into pipes to sell to Allegheny Fence and other customers.

"Our order book says we could run our facilities more than that," Magno says.

Some of the shortages can be blamed on the cheaper dollar, which drives up the costs of imports.

The weakened dollar discourages foreign steelmakers from shipping products to the United States, even though the world's largest industrialized country can't produce all the steel it needs. And prices for the imports are being inflated further by ocean freight rates that have doubled or tripled over the last year.

Raw materials are another sore spot. More than half of U.S.-produced steel is made by melting junked cars, refrigerators and other steel products. Steel made from iron ore also relies on scrap, the price of which has more than doubled over the last year.

Prices for some high-grades of scrap are approaching $300 a ton. A few years ago a ton of sheet steel made from scrap wouldn't have fetched much more than $200. Steelmakers are imposing surcharges to cover their escalating scrap costs, including Allegheny Technologies. Last week, the Pittsburgh-based producer said it will charge an extra $60 per ton, effective tomorrow.

Coke, a baked coal used as a fuel by some steelmakers, is also in short supply and has seen its price roughly double in the past year. The shortage and the price increases have forced Weirton Steel and some other producers to cut back production.

Many blame the raw materials shortages on China. Unprecedented growth in steel production and consumption are expected to continue for the foreseeable future as that rapidly developing country rushes to join the ranks of industrialized nations.

"I can't imagine one country in the world could screw up the economy this much. What the hell are they building over there?" says Don Lawrence, purchasing agent for George L. Wilson & Co., a North Side building materials distributor. "China is basically screwing up the world market for steel prices right now."

Put all the factors together and you have what Tim Miller calls "a perfect example of the law of supply and demand."

"We have not seen the likes of steel increases like we have today for approximately 30 years," says Miller, Master Halco's vice president of operations.

John Anton of consultant Global Insight says the 200-million ton glut industry leaders were griping about a few years ago has pretty much evaporated. He blames growing demand in China, growth in other parts of the world, mill shutdowns and raw materials shortages that prevent mills from making as much steel as they can.

"I think they're running as hard as they can," he says of steel producers. "With prices like this, I think people would like to jump."

Tensions are mounting over how the price increases ripple through the industry. Big steel buyers are balking at the surcharges for raw materials, but little guys such as Roberts and Nayhouse have no choice.

"So far, no one's had the guts to do that yet with General Motors. But if you're a small buyer, you're up the creek," says analyst Charles Bradford of Bradford Research.

Farther down the supply chain, steel goods merchants are raising prices with little or no notice. Wheatland Tube notified customers Jan. 29 that starting tomorrow, orders will be priced when they are shipped. The new policy applies to orders Wheatland had already taken.

"Anticipate these conditions to continue at least through the first half of 2004, and expect the need for additional price increases in the near future to be very high," national sales manager Gerald D. Slattery, Jr., wrote. "We suggest that you inform your customers of continued rising prices for the foreseeable future."

There's an element of panic to the buying, as customers worried about paying more later -- if they can order at all -- stock up while prices are relatively low compared with what may happen and steel is still available. While that strategy seems reasonable, it won't when the market turns and prices head south.

"You don't want to get stuck with an inventory that's overpriced if it goes the other way," Roberts says.

Bradford said the problem will last until the scrap situation thaws. Weather is part of the problem. Freezing temperatures make it harder to collect scrap and shred it into small enough chunks to throw into a steelmaking furnace.

In addition, scrap will become more available as the economy heats up and manufacturers generate more of it, he says.

But warmer weather will also bring more business for companies such as George L. Wilson. If prices are so high and supply is so tight when business is slow, Lawrence asks, what will be it be like when demand picks up? "I hope the steel is there for us," Lawrence says.