We've commented on the rise in steel prices numerous times over the past year. It's a trend that has benefited steel makers such as U.S. Steel (NYSE:X), Nucor (NYSE:NUE), and AK Steel (NYSE:AKS) mightily as they turn the last few years' troubles into this year's profits. But this trend has a downside, as illustrated in news that rolled out of Maytag (NYSE:MYG) last week. Maytag, a big user of steel products in manufacturing its home appliances, has seen the prices it's forced to pay for raw materials skyrocket this year, roughly doubling over last year's costs.
Maytag competitor Whirlpool (NYSE:WHR) has responded to the rising costs -- some of which may have been imposed in breach of supply contracts -- by filing suit against at least one of its suppliers, Ispat International (NYSE:IST). Maytag, in contrast, is seeking solutions closer to home. As reported in the Wall Street Journal on Friday (this isn't the kind of news that a company usually wants to advertise in a press release, so you won't find it on the company's news page here on Fool.com), the Newton, Iowa, company has now frozen the pay for its salaried workers. Moreover, it's soliciting voluntary resignations among its workers in exchange for severance packages.
Some might fault the company for taking out its own bad luck on its workforce. But that wouldn't be quite fair. WSJ reports from earlier this year described how Maytag and other appliance makers have already tried other options to work around the temporary cyclical spike in steel prices. They've tried, for instance, using steel substitutes, manufacturing more machines from aluminum. But that didn't pan out. Aluminum prices have risen along with steel -- to the joy of investors in aluminum companies such as Alcan (NYSE:AL) -- leaving Maytag and its compatriots with no real alternatives available at a reasonable price. As a result, its cost of doing business has risen, and the resultant hikes in appliance prices have hurt both sales and profits in comparison to last year.
About the only good news for investors in Maytag (not to mention its employees) is that steel is a cyclical industry. Prices that are up today historically will go down tomorrow. And sales that weren't made today will become pent-up demand to fuel tomorrow's sales, tomorrow's pay raises, and tomorrow's rehiring of sidelined employees. Small comfort for today to be sure, but these days you have to take what comfort you can get.
Can't quite get your fill of depressing news about Maytag? Try reading:
Fool contributor Rich Smith owns no shares in any company mentioned in this article.
