Are These Raw Material Costs Going Up?
Last week I had lunch with the general manager of a local metal service center. We do some business with his company, but more importantly, we share a few good customers. He is definitely seeing components for stainless steel increase. My price for magnesium has gone up 25% since last spring. “What do you think is causing this?” I asked. He attributed it to anti-dumping tariffs that were put in place a few years ago and are finally being enforced. While there is definitely a threat that Trump will bring protectionist pricing, we don’t think that is the cause. It could certainly be a possibility in the future.
With this information, I decided to check on our common materials: aluminum, steel, stainless, and magnesium. I'm sharing what I found below.
Aluminum ore looks to have gone up about 5%. According to MetalMiner, “One of the factors supporting higher aluminum prices has been that there were fewer smelter restarts than expected smelter in China. In addition, we foresee limited additional restarts this year due to rising production costs and pollution issues in China. First, alumina seems headed for a supply deficit this year following Chinese curtailments. Second, coal prices have surged since China reduced the hours for workers in its coal sector, supposedly in a bid to control pollution and curtail its excess industrial capacity.”
Since summer, steel has gone up about 30% in 2016, with some pull-back in the fall, but it is increasing again. Per MetalMiner, “Hot-rolled coil and cold-rolled coil prices in the U.S. have risen 13% and 17%, respectively, since they hit bottom in mid-November. Additionally, steel prices in China continued to climb in December. We already noted that one of the reasons to expect higher steel prices in the U.S. was rising Chinese prices.”
In 2016, stainless prices were mostly flat, but we are starting to see increases from our suppliers. According to MetalMiner, “… surcharges for 304 and 316 stainless steel rose by 34% and 25%, respectively, as the chrome portion of the benchmark jumped month-on-month. The mill-announced price increase, combined with higher surcharges, marks the largest month-on-month increase seen in recent history.”
What’s it All Mean?
My service center friend is encouraging his large customers to hedge—at least a portion of their annual buy. Some have, but most have not. Unfortunately the ones that have not are losing hundreds of thousands of dollars.
And if you are a smaller OEM: how can you reduce the impact of raw material price increases?
- One way is to place your annual POs now, and have your material supplier consolidate the orders and hedge for a group of OEMs.
- Another way is to buy your raw stock direct and consign it to your custom sheet metal fabricators when the market dips again.
- Lastly, consider working more closely with your sheet metal fabricator to lower costs elsewhere in your custom sheet metal fabrication.
When the raw material price drops, you’ll reap the rewards of all the hard work you did this year. Know that we always work with you to ensure you get the most value out of your custom sheet metal fabrication. We’re here to answer all your questions—from pricing to production. Contact us so we can help you with your next sheet metal fabrication project.