Marketing assets

Good to know: Controlling container costs: LPG

In the Know is a monthly partnership between LPG and Propane Resources. This month, we focus on high steel prices and how propane retailers can adapt to better manage the cost of tanks, addressed by Marketing Manager Scott Slocum.


QUESTION: With high steel prices, how can propane distributors control the cost of containers?

ANSWER: Stratospheric steel costs have strained the budgets of propane suppliers.

Propane dealers can reassess and reallocate tank assets that are already in the field to avoid purchasing new tanks at relatively high prices. (Picture by LPG Personal)

The pandemic prompted many steel mills to cut production or shut down completely two years ago. Steel prices at the end of spring 2020 were around $440 per ton. By December of that year, steel prices had more than doubled to around $900 a ton. In March 2021, buyers were paying $1,270 for a ton of steel.

Manufacturers’ costs for ASME and DOT tanks reflected these price increases as they faced volatile steel prices, higher shipping costs, and cost-of-living increases. Compare the price of a 500 gallon aboveground tank in early 2020 ($1,292) to a recent quote for a unit of the same size: $2,701 is fairly typical for a new tank.

The good news is that the price of steel has stabilized and started to fall. It is reasonable to expect that tank prices could decline over the next year.

Potential propane customers realize, “Hey, winter is coming. We’re going to need propane. Recent summer tank sets may have depleted suppliers’ existing inventory, so can companies afford to continue installing tanks for new customers without digging deep for expensive new units?

Scott Slocum

Slocum

One of the best answers is: yes; most companies have idle or underutilized assets in backyards, parking lots, and perhaps even their own tank farms. The key is knowledge of asset inventory.

The first stop should be the tank farm. Some of these old tanks, in usable shape with legible nameplates, can be taken to trained renovators, sanded down to bare metal, repainted and updated with new valves and fittings. It’s a way for operators to avoid paying for expensive new propane vessels.

Assessing propane sales to tank rental customers may indicate that a tank is no longer in service, perhaps disconnected, sitting sadly in the weeds. Suppliers need to determine if this reservoir can be salvaged and reborn as a for-profit asset. The same is true for low-utilization sites that rely on much larger reservoirs than necessary. Larger capacity tanks can be replaced with smaller, more logical sizes. Larger ones can be reused for high-volume users, where possible, to reduce the number of annual charging trips.

Prudent propane suppliers can make do with their current assets until new steel tanks are needed.


Scott Slocum is Director of Marketing at Propane Resources. He can be reached at [email protected] or 913-262-3393.