Import Prices for Carbon Steel Flanges

The import carbon steel flange market has been very volatile in 2017, and this blog will analyze some of the primary factors contributing to the volatility.  This will include the anti-dumping determination by the Department of Commerce.  This will be a four part discussion, with the titles listed below, and the goal will be to assess the future of flange pricing and flange economics.

Part 1: Basic economics and Rising Flange Input Costs

Part 2: How Fluctuations in the US Dollar are Changing Flange Prices

Part 3: Crude Oil and Flange Prices

Part 4: The Effects of the Flange Anti-Dumping Determination

Flange Economics (Part 1): Basic economics and Rising Flange Input Costs

It is important to begin by recognizing a flange for what it is, a commodity.  All carbon steel flanges are manufactured in accordance to ASME B16.5, and from a product perspective, this uniformity makes carbon steel flanges nearly as undifferentiated as the oil/gas they are often used to transport.  With this in mind, some basic economics can be used to understand pricing fluctuations.

Fluctuations in Production Costs

Like any commodity, supply and demand rule the day.  In fact, they govern pricing every day.  Let’s consider what happens to the supply of flanges when the cost of the carbon steel fluctuates.  Consider the chart in below.  For every $1 increase in the cost of carbon steel, the supply curve will shift to the left (for a $1 decrease in cost, the supply shift will correspondingly shift right).  This is because manufacturers will be less willing to sell flanges at their previous prices, since their costs have increased.  Now, when this supply curve shifts to the left, the price will also increase (from E1 to E2 in the chart).  It’s unclear just how much this price jump will be, but even though demand for flanges is relatively inelastic (flanges are more of a need than a want), it’s unlikely to be as high as the cost increase.    So, in summary, a $1 increase to the cost of the carbon steel needed to manufacture a flange will increase the price paid for the flange in the US by some amount less than (but probably near) $1.

carbon steel flanges  

Figure 1: Supply Curve Shift

Fluctuations in Carbon Steel for Producing Flanges 

Now, let’s look at how this plays out in reality.  First, it’s important to know that carbon steel price fluctuations are most often driven by the price of two inputs: iron (Fe) and Manganese (Mn).  While iron makes up ~99% of carbon steel and Manganese only comprises ~1%, Manganese is roughly 30x more expensive than iron. The chart below shows that the cost of iron has increased 40% during the past two years.  Over the same time frame, Manganese has increased roughly 40% as well.  

Iron Fe Price

Figure 2: Fluctuations in Iron ore during the past two years

So, since the cost of carbon steel drives roughly half of the cost of producing a flange overseas (the other half is driven by labor and overhead), the cost of producing a flange increased roughly 20% over this time period.  This shifts the supply curve to the left, as shown in Figure 1, and flange prices are expected to increase at a rate somewhere near but below 20%. 

It is also important to note the timing of this price increase.  The US market is driven by cost-based pricing, and since it takes around 6 months for a flange shipment to arrive in the US, it will take 6 months before the US market fully realizes the price increase.  Therefore, flange pricing can be speculated (for 6 months in the future) by monitoring the current price fluctuations of Fe and Mn.