For the past few years, manufacturers have enjoyed declining and advantageous input costs on most commodity industrial metals – copper, zinc, aluminum, iron, tin, steel, etc. The party has most definitely come to an end. As the global economy heats up, demand for industrial metals to supply the manufacturing sector in all markets likewise increases, resulting in a steady upward pressure on raw material input costs. Barring another major economic or geopolitical crisis, we have likely seen the last of a softening commodity market for quite a while, and must prepare for a period of increasing cost pressures.
Manufacturers in the USA, particularly small manufacturing enterprises, need to be aware and be taking proactive steps to prevent margin erosion due to negative purchase price variance resulting from these commodity pressures.
Know what your metal purchases should cost – be better informed than the salesman across the table from you.
Hopefully as a manufacturer you haven’t been a passive, price-taking buyer, or a seller allowing larger customers to dictate how material cost inputs are to be dealt with. Hopefully, you already have indexing agreements in place with both suppliers and customers. Most importantly with suppliers, because without such agreements you have likely lost out on the benefits of the past several year’s market and allowed your suppliers to pocket the benefit of declining commodity prices. If you find yourself in that disadvantaged state, there’s still hope. Do your homework now, to fully grasp the implications of what your suppliers shared or failed to share with you, and include that as a firm argument in favor of avoiding, deferring, or reducing price increases they are undoubtedly going to be asking for now that prices are on the rise. Market price information for many industrially important base and semi-precious metals is readily available through sources such as COMEX (CME) and the London Metal Exchange (LME). Unfortunately, price information for the most common industrial metal – steel – is harder to readily come by and often requires subscription to a source such as the American Metal Market (AMM). However, an AMM subscription also includes information about other precious metals, non-ferrous metals, scrap pricing, and raw materials critical for making steel, as well as global news relevant to the metals industry. Expect steel long product pricing – bar, beak, rod, and rebar to temporarily stiffen as Gulf region rebuilding accelerates. As a leading indicator for the direction steel pricing is likely to go, watch for any indication that the Chinese real estate sector, the world’s largest consumer of steel, is maintaining its heady pace or slowing down. A declining Chinese real estate sector will likely herald declining global steel prices, unless China more aggressively takes steel capacity offline.
Scrap is money – make sure you get yours.
Pay attention to your process scrap, where it goes, and what it is worth. Nobody is “doing you a favor” taking it off your hands. There’s money to be made in ensuring you are getting the right value for clean, segregated process scrap that you sell to the “scrap man.” Expect scrap prices in the Gulf region to temporarily dip, as materials enter the scrap market from the teardown of buildings and infrastructure related to Hurricane Harvey. However, scrap pricing in other markets should be unaffected because in general, as prices for raw materials increase, so does the value of scrap usable for recycling into new raw materials.
Leverage large customer master contracts.
If your customers are large enough to offer a master contract under which you can buy raw material, then merely pass through material costs to them, consider signing up. Doing so will eliminate difficult repeated conversations about commodity pressures, and allow you to focus on charging the right amount for your superior value added processing capabilities.
Know what your product should sell for.
Start, if you haven’t done so already, to have discussions with your customers about your product pricing. It will likely take several rounds of discussion before they might weaken and accept a commodity-driven price increase, but the longer you wait, the longer it will take. Any purchasing professional worth their salt will be at the ready with a “NO” answer, so don’t just go in hat-in-hand asking for money. Go in prepared, able to intelligently present your case regarding the need for a price increase given market-driven commodity cost pressures. And be prepared to go in again a few weeks later to again make your case. You may have to repeatedly wear them down, so don’t be surprised if they reject your request, but don’t take it for a final answer either. If your customer extracted price concessions from you as costs decreased, it is all the more critical that you get in front of them now, well informed and armed with rational arguments reasonably asking for price concessions now that the situation has reversed.
The same trends broadly apply to almost any commodity, but especially to metals. Start now to ensure you are getting fair prices from suppliers and scrap dealers, and charging fair prices to your customers.
Industrial commodity pricing is in on the rise, particularly for metals
Hurricane Harvey rebuild efforts may further support steel long product pricing
Watch construction in China as a potential leading indicator for global steel prices
Monitor other commodity metals pricing via publically available commodity pricing data to see overall trends
Prepare now to contain cost pressures from suppliers and to seek price increases from customers
Make sure you are capturing the right value from your scrap streams
What can you do?
Bookmark this blog to stay informed (press CTRL + D for Windows users or Command + D for Mac users)
Article submitted by Bank of America For mid-market companies, business success and responsible growth aren’t mutually exclusive. In fact, prioritizing responsible growth is becoming increasingly important, and successful companies are making sustainability central to their growth strategies. Beyond good corporate citizenship, they are recognizing the intrinsic link between the strength of their business and that of the communities and economies in which they operate. Leading your growth with those goals in mind builds resilience and better solutions for the future. Consider the following: Responsible growth companies perform better. Companies that consider the impact of risks and opportunities on the environment, local communities and society may produce better financial results than those that don’t. Additionally, 90% of companies believe a sustainability plan is important for remaining competitive. Responsible growth companies attract investment. A 2016 study by MIT Sloan Management Review and Boston Consulting Group surveyed 3,000 executives and managers from more than 100 countries. Findings revealed that 75% of senior executives in investment firms agree that a company’s sustainability performance is materially important to their investment decisions, and nearly half would not invest in a company with a poor sustainability record. Ninety percent of executives see sustainability as important, but only
HEADLINE The survey definitively shows that product innovation leads to more growth, while “grow your own workforce” strategies will be needed to fill the major labor shortages hampering small manufacturer growth. Emerging technologies like the Internet of Things (IoT), 3D printing, and digital manufacturing are beginning to enhance innovation and productivity, but still have significant room for adoption amongst Ohio’s small manufacturing businesses. ABOUT THE SURVEY Under the direction of the Ohio Manufacturing Extension Partnership (Ohio MEP), MAGNET: The Manufacturing Advocacy and Growth Network conducted a thorough survey of Ohio’s manufacturing base. Contributing approximately 20% of Ohio’s jobs (and driving in some regions up to 50% of Ohio’s economy), and generating a disproportionate amount of export revenues and Gross Regional Product, manufacturing is critical to Ohio. Greater than 95% of Ohio’s manufacturers are small (under 500 employees), and these manufacturers need to remain competitive both nationally and internationally to ensure our economy’s health. Ohio’s Development Services Agency and the National Institute of Standards and Technology, which runs the MEP, recognizes the importance of this sector and fuels MAGNET and the Ohio MEP program to directly serve and support innovation, efficiency, and growth in small and medium manufacturers. What manufacturers need
How Virtual Reality and Augmented Reality Can Help Keep Our Engineers Safe and Our Manufacturing Strong Recall how difficult it was to put together complex LEGO creations when you were a child or helping a child. Now, picture assembling a fighter plane from a room full of parts. Even highly trained engineers can benefit from technology to help improve consistency and quality. Virtual reality (VR) and augmented reality (AR) are making near-perfect assembly a possibility in the manufacturing space. By wearing AR glasses that use cameras, depth sensors and motion sensors to overlay images onto the real working environment, engineers and factory workers can visualize the exact bolts, parts, part numbers and instructions on how to assemble a particular component correctly. Lockheed Martin began using AR goggles and improved F-35 assembly time by 30 percent, in addition to increasing accuracy to 96 percent. In order to remain competitive, businesses should consider the ways VR and AR can improve efficiency and supply chain productivity. According to a recent BofA Merrill Lynch Global Research report, AR platforms can provide companies up to 25 percent in cost savings on installation of equipment. Here are four ways VR/AR is disrupting the mid-market manufacturing space: