June 5, 2006

Over the past few weeks we have been watching a troubling situation develop in the aluminum magnet wire market, and it has now become apparent how serious an effect it will have on the manufacture of distribution transformers (Aluminum magnet wire is frequently used in a distribution transformer's primary winding.). We are advising our customers of this situation, so they can better understand the impact on their businesses.

The two domestic producers of aluminum magnet wire, Rea Magnet Wire Company and Superior Essex, have recently announced that they have been placed on allocation by their suppliers of aluminum rod. Aluminum rod, now in limited supply, is the raw material used in the manufacture of aluminum magnet wire. Both Rea and Superior Essex have explored alternative rod sources, but have indicated that there are presently no other viable sources.

As a result of the aluminum rod allocation, Rea and Superior Essex are experiencing production constraints and have now placed Howard Industries and their other transformer customers on allocation. These suppliers are not able to meet our current need for aluminum magnet wire. Deliveries of aluminum magnet wire to our distribution transformer plant are not satisfying our overall tonnage requirements or our specific gauge requirements.

The aluminum wire allocation will adversely impact our transformer manufacturing schedule and will result in extended leadtimes for aluminum-wound transformers. Unfortunately, this situation is expected to continue through the summer months and beyond. Prior to being placed on allocation by their rod suppliers, both Rea and Superior Essex were running their aluminum magnet wire mills at capacity. This means that even if the aluminum rod shortage eases, little improvement will be expected in the supply of aluminum magnet wire.

If you have any questions, please feel free to call your Howard Industries Sales Representative, or Regional Marketing Manager.