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April 14, 2004

To Our Valued Customers:

   I feel it is time to bring you up to date as to what has been and for the foreseeable future will continue to occur in the stainless steel and high alloy PVF market. If you are a purchaser of carbon steel flat rolled and PVF, what I am about to tell you is miniscule compared to what you are experiencing.

   We in the United States are finding business fairly brisk, but a lot of the business we and you are experiencing will eventually end up in the Middle East or better yet in Southeast Asia. Business in Europe is at best flat, the main reason for this is that the euro is so strong against the dollar and also against Asian currencies that are linked to the dollar.

   A goodly number of our customers that have been doing business with us for years and years know that I travel at least once a year to Southeast Asia to make sure that the pipe, fittings and flanges that we bring into this country meet all United States specifications in everyway. I spent the last two weeks of February visiting Japan, Korea, China, Taiwan, Malaysia and Thailand. The report I bring back to you from these countries is that their economies in the steel and stainless area are booming. It’s booming because every pound of stainless or steel that these countries can produce is being shipped to China.

   Demand in China for everything is incredibly strong. An example of what I am talking about was in The Wall Street Journal while I was traveling. In 2003, China consumed 60% of the world’s concrete and 35% of the world’s steel. To say the least, these are incredible numbers. There’s a saying in Shanghais, “if you leave the city for one week, when you come back the skyline would have completely changed.” China is like a vacuum, it’s just sucking everything into itself.

   All indications are that this will continue into 2006. As most of you are aware China is paying a premium for scrap steel and scrap stainless steel. They are also acquiring metals like copper, nickel, moly and chrome. Their appetite is so large that they can not get enough of anything. They are causing prices to continually go up.

   Now we need to address what has been happening to our market pricing. I will be using the year 2002 as a basis in order to give you a better understanding of the price increases. I will address all of the major commodities that we sell. The percentages I will talk about are the percentages that apply to stainless steel, pricing for higher alloy material will carry different percentages.

Stainless Steel Welded Pipe & Tubing
   In 2002 the domestic pipe mills raised prices by 5% in November of that year. Pricing for pipe was stable through the first six months of 2003, the only thing that fluctuated were the surcharges that our manufacturers applied to the cost of the pipe. Then things started heating up overseas and the nickel and moly surcharges started escalating from June to December, surcharges more than doubled. On January 1st of this year we experienced a base price increase of 7%. On February 1st we experienced another base price increase of 7%. On March 1st we experienced another base price increase of 6.5%. And next week we will have another base price increase of 8%. This is a 32% increase in the base price in 3 months.

   I hope you are sitting down because what I am going to tell you will shake you to the bone. The surcharges for 304 stainless steel increased 2100% from January 1, 2002 to April 2004, these same surcharges for 316 increased 2300% in the same time frame. That my friends is a staggering number. Above and beyond these staggering increases, deliveries on scalp are running out to about 12-14 weeks.

   Worse yet, plate is almost impossible to get. An example is 18” x .250w 316L pipe. Three mills regretted and one mill quoted 20 weeks to deliver. There are extreme shortages of certain items especially in large diameter pipe.

   The above also applies to our tubing costs, but it is not as noticeable because we all know the price of 1/4" tubing is less than a dollar so if the same increase applies in pure dollar and cents it doesn’t look great.

Stainless Steel Seamless Pipe & Tubing
   As any buyer of this commodity is acutely aware somewhere around 90% of this material is imported from Europe or Southeast Asia. What product is manufactured in the United States is made from foreign hollows. The demand for seamless pipe in this country has escalated over the last six months because the power generation industry is recovering rather nicely. Lead-time from our overseas mills are now running 16-20 weeks ex-mill. During this same period, prices have pretty much doubled. Above and beyond the pricing situation seamless pipe and tubing is in short supply in this country because of a lack of inventory build up last year.

Stainless Steel Butt-Weld Fittings
   In 2002 butt-weld fittings very quietly increased by 10%. During 2003, prices gradually increased by another 10%. Then in December and January prices increased by about 27%. That represents in total about a 50-60% increase for the price of a fitting. Remember butt-weld fittings are made from pipe so as pipe goes so does butt-weld fittings.

Stainless Steel Flanges
   In August 2002 flange prices increased by 6%. Then in April 2003, flanges increased by 13.5%. Then again January 2004, flanges increased 13% for 304 and 16% for 316. Earlier this week we were advised that next week flanges will increase by another 10%. Here again we have experienced an increase of about 55%. Above and beyond this pricing, flange deliveries are very extended with lead-time running from 12 to 16 weeks. Flanges in the size range of 10” to 24” are in extremely short supply and carry premium pricing.

Stainless Steel 150# & 3000# Fittings
   Pricing for this commodity stayed flat during 2002 and half way through 2003. Then during the middle of 2003 every order we placed increased by between 5-8% then to finally last month prices increased by another 10%. I was advised this morning that in the next two weeks we will make an announcement of another price increase. The total increase over the last year and a half has been about 35-40% excluding this new announcement.

Stainless Steel Nipples
   During 2002 and half of 2003 nipple prices were flat. Late last year we experienced a price increase of 10% and earlier this month another 15% increase went into effect. The net effect on nipple pricing is a 25% increase. This is a puzzling one to me because nipples are made from pipe and the increases do not truly reflect the increases that were experienced in stainless steel pipe.

Stainless Steel Valves
   Over the last 1-1/2 years stainless steel valves have increased about 17% which is a lot, but in relation to the other increases it is not as great. I think the main reason for this is that the pure weight of a valve in comparison to its total selling price does not have the same proportion as it has for pipe, fittings and flanges.

Stainless Steel Sanitary Fittings
   These prices remained relatively stable over the last two years and again I think it has to do with the raw material cost in proportion to the selling price. We have been advised by our fitting manufacturer that their prices are going up the end of March. At this point, we do not know what kind of increase they are planning.

   I felt this information is necessary so you can understand what has happened in the past, what is existing and what future changes may bring. I think it is advisable that you take this information to your management, purchasing and estimating personnel so they will understand our position and what is transpiring worldwide.

We will be more than happy to review any pricing questions you may have on an individual basis.

Sincerely,


James Bokor
President