Waiting for metal prices to fall

July 25, 2008
By: Dan Davis

When I say everyone is worried about rising material prices, it"s not that far of a stretch.

A summer survey of 72 senior-level manufacturing company owners and managers revealed that 93 percent of them
consider rising material prices to be the No. 1 cost pressure facing the industry. That"s up from 43 percent in a survey conducted in January.

(A note from the honesty department: PrimeAdvantage a buying consortium for midsized manufacturers, conducted the survey. Members of the Fabricators & Manufacturers Association, the parent organization of The FABRICATOR and its many offshoots, such as this lovely blog, have a relationship with PrimeAdvantage. FMA members of a certain level can take advantage of PrimeAdvantage"s combined purchasing power for several things, including metals. For more information, listen to this podcast.)

Everything that goes up must come down, right? The Kiplinger Newsletter recently reported that prices for copper, nickel, lead, stainless steel, and zinc should all fall back a bit in 2009, but that aluminum should rise because of production downturns occurring worldwide. That"s not exactly the relief that many metal fabricators are probably after, but it might be the best they can get.

It"s a simple fact: As long as emerging economies keep growing, they will have a voracious appetite for metals to
create the infrastructure needed to support their more affluent lifestyles. That means we can place the blame for
high metal prices on those BRIC countries, Brazil, Russia, India, and China. In their cases, nothing—including
bricks—seems to be slowing down their economies.

Steven Anderson, executive director of private wealth management, Morgan Stanley, Chicago, told
magazine that China accounts for about 33 percent of global steel consumption, and Brazil, India, and Russia represent another 17 percent. That"s four countries gobbling up half of all the steel produced in the world, and the International Iron and Steel Institute predicts steel demand from these countries to increase more than 10 percent in 2009.

For metal fabricators waiting for metal prices to return to what they were in the late 1990s, they better be pretty patient. This cycle of increased demand and tight supply is not going to disappear anytime soon.

Metal fabricators will have to be forceful with their customers. Randall Waldman, CEO, Integrity Manufacturing, Shepherdsville, Ky., told me last week during an interview that his company locks in a surcharge on every contract. When metal costs go up, a surcharge is added to the job"s total cost. The company even does it with fuel.

We are not going to get caught like they did in 2001 or 2002 when a lot of people had these large production contracts where they couldn"t change their contract price. They were actually shipping product for less than it cost
them to make it, Waldman said. We have learned from other people"s mistakes.

All cycles come to an end, but you can"t mark a calendar as to when that might be. Don"t bet on it ending anytime soon.

Dan Davis

Dan Davis

FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-227-8281