Large Price Increases Looming on Metal and Copper Products
February 2, 2004

Dear Virginia Air Valued Customer,

On February 2nd, Virginia Air Distributors implemented a generic 2-3% price increase on equipment, supplies, and parts. In the past month we have received numerous warnings and actual cost increases on metal and copper products. This memo is to announce that Virginia Air Distributors might have to announce sudden and sizable price increases to help offset cost increases in these particular products. As always we will try to keep you informed, however the size and speed with which these costs are moving is hard to control.

Over the past month the price of steel has skyrocketed. Many factors are coming
together simultaneously affecting the price and availability of steel.

* High demand in China at high prices.
* Devaluation of U.S. dollar (more profitable to export)
* High price of scrap and lack of availability of coke to produce steel.
* High cost of ocean freight.

Domestic mills have reacted by making changes on a daily basis. Vendors have been forced to pay surcharges on existing orders that were placed last year. The mills have announced additional increases that take effect in February, March, and April. Foreign mills that are still in the market have reacted by substantially increasing their prices.

At some point in the very near future we will be increasing our prices on steel product by approximately 10%. If steel prices continue to escalate, we may have to further increase prices later this year. At this point we have heard from only the steel products industry. We have yet to hear from companies that produce products like grilles and registers or b-vent. In all likelihood these suppliers will have no choice but to follow suit and increase prices. We will closely monitor the market to make sure we keep you in a competitive position.

In addition to steel we have seen substantial price increases in the cost of wire and copper. The increase in the price of wire seems to be attributable to the increased cost of metal. Copper prices have increased sharply (10-20%) in the last three months due to low supply levels in the industry. Industry experts hope that when copper suppliers increase production prices will fall back to normal levels. In the short term however Virginia Air might have to raise prices on line sets, copper fittings, and rolled copper until costs decline.

Please be aware of the above information when you are bidding projects as we will not be able to protect prices with the scale of the expected increases. Please contact your Territory Manager or local branch if you would like more detailed information.


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