HAMMOND | The drop in the supply of steel scrap and its huge price increase can pound the profits of the small manufacturers who use it to produce their products.

Chain link fencing is made one of the many items of steel scrap material, said George Huskisson, owner of Hammond Fence.

"It's at a all-time high and much of it is going to China," Huskisson said. "Prices are very volatile. We've had four price increase from our distributors, a 30 percent increase already this year, and they don't know that there won't be more in the coming months. It has a huge effect on me."

Add soaring fuel costs to the higher costs for material, and companies are being forced to respond, Huskisson said.

"I can't afford to sustain those kind of increases without increasing our prices," he said.

Beside chain link, Hammond Fence also sells wood and plastic fencing. The latter currently is winning the market for residential fencing because of its maintenance-free characteristics. But the state of the economy and current housing woes, have trimmed the company's residential business significantly, Huskisson said.

"Right now, business is quite a challenge," he said. "The high prices for steel. The slow market for plastic. In the past 20 years I've established a good customer base and that what keeps us working."

The state of the economy, however, is providing one benefit for the company.

"Even though steel is what price it is, I'm in a security business," Huskisson said. "When the economy starts drying up, people want to secure their stuff, and we benefit from that. That demand balances some of the higher costs."

Yet, commercial and industrial security fencing also has its downside. The company normally bids commercial and industrial work in advance and then has to deal with higher than projected material costs.

"We try not to scare people away with escalator clauses," Huskisson said. "We try to inform them that it's a challenging time, and make sure they're aware of what's happening in the industry."

Plus, with residential accounts, the company is paid as soon as the work is completed. Commercial and industrial accounts don't pay until 30 days to 60 days or even 90 days after the work is completed, causing cash flow struggles for the company, Huskisson said.

"You need to diversity to be able to ride the waves," he said. "We went for 15 years without a steel price increase, then in 2004 steel prices were outrageous and there were shortages. So this is not the first time it's happened. But I like to think that now we're smarter and more prepared."