Dealing with the downside of an economic upturn.

A window washer who specializes in downtown Chicago high-rise buildings was once asked, "What's the one thing you should never do in your profession?" He answered: "You should never step back to admire your work."

Whether we like it or not, this sage advice would seem to hold true for all of us in business today.

Just when it appears the economy is picking up and, maybe, just maybe, we can sit back and enjoy the fruits of our business struggles, a whole new set of problems crops up and takes the edge off the glow. Life today just isn't going to allow us to sit back and relax too long.

The good news is the metalcasting business is going pretty well right now. The bad news is our success combined with other factors has increased the demand--meaning price--for some of the most basic staples of the foundry business. In this case, ferrous scrap.

In our Forecast & Trends--'94 report last month, Ken Kirgin of Stratecasts, Inc. projected a 7.5% across-the-board increase in casting shipments for the year. This comes on the heels of a pretty good 1993 when some 11 million tons of domestically produced castings were shipped. Last year, U.S. foundries operated at about 77% of their capacity.

Combine our business upturn with that of the domestic steel industry, which reportedly is operating at about an 85% clip and is expected to ship 90 million tons or more this year, and the rapid rise in scrap prices isn't particularly surprising. The current prosperity of both the casting and steel industries is being driven by strong demand from end-use markets, including automotive and construction.

According to the Iron Age/Scrap Price Bulletin, No. 1 heavy melt composite rose from $87 in early December 1992 to $133 in early December 1993. During the same period, No. 1 bundles in Detroit rose $55, from $91 to $146. They also report that little change is expected in the scrap supply and demand during at least the next several months.

Another, sometimes unknown factor playing a significant role in the continuous rise in ferrous scrap prices, according to the January issue of New Steel (formerly Iron Age) magazine, is the almost unpredictability in freight rates. El Hoeffer writes, "When the transportation industries were deregulated in the 1980s, many expected lower freight rates and an expanded, more diverse marketplace. Those benefits developed, but an instability also arrived."

On top of this, there reportedly is a shortage of railroad freight cars. And here's what makes this factor even more interesting. Hoeffer reports that "Carriers of every transportation mode now have a choice of what they prefer to transport. Scrap is undesirable to many truckers, who prefer to carry cleaner, more manageable product. Scrap is a minor commodity for barge transport. Only the railroads seem to view scrap without disdain."

While there are other concerns about the rapid rise in scrap prices, including exports to other industrial countries, it's a very real problem that needs to be handled. Some foundries and mills are seeking alternate melt stocks like pig

iron, direct reduced iron and lower grades of scrap where quality levels will allow. In most cases, though, a surcharge is the only real alternative because no business today can afford to swallow cost increases like the ones we're seeing with ferrous scrap.

In the past, surcharges like these have been met with more than a little resistance or rejected altogether. But there is some indication today that the value of long-term partnerships and cooperative agreements forged between suppliers and customers during the last few years will really show up as situations such as surcharges arise. For example, one foundry president told us recently that in the past he was told by his largest customer not to show any sort of surcharge on job quotations. In essence, it was understood they were to bury any increased costs somewhere in the bid. Contacted recently about the rapid escalation in the price of scrap, that same customer was directed to add a line item showing the scrap surcharge.

He reasoned that his customer better understood the foundry business and was more open to discussing problems that will typically occur during changing business cycles. At the same time, it was understood the surcharge would be reduced or removed if scrap prices declined. This further reinforced his foundry's credibility with the customer.

I can't really say this is a typical customer-supplier scenario today. But it would be nice to believe that casting users better understand the true value of a quality product doesn't always show up on the bottom line of a request for quotation. If this is true, it would be solid evidence that business partnerships can and do work. And that they can work in either good times or bad.