Falling metal prices could be a boon for manufacturers

Going through AG Metal Miner

Most metal prices have seen significant declines from price levels seen just a year ago. In fact, out conduct, all non-ferrous and ferrous metal prices appear to be significantly below the price levels seen in 2021. Most suppliers continue to remain chasing this decline, choosing to place the burden of cost reductions on purchases. That said, detailed models of expected costs for semi-finished materials can help achieve double-digit savings for carbon steel, aluminum, and stainless steel.

2023 will be the first in several years where metal prices favor buying organizations over suppliers. This momentum provides a significant opportunity for purchasing organizations to recoup funds from price increases from 2020 to mid-2022. However, to reap these benefits, buying organizations will need to understand the precise price cuts. This applies not only to the exchange-traded portion of metal purchases (e.g. bullion prices), but also to the price declines of many of the more expensive items that make up the total cost. These elements include price reductions for conversion premiums, freight rates, MW premiums, surcharges and any other additions applied to products in rising markets.

Every manufacturing organization that relies on semi-finished metals or metal-containing parts and components is expected to see these cost reductions for 2023. This is true regardless of industry and demand.

In this article, we will explain the current metal market price trends. We’ll also explore the kinds of savings you can expect on your semi-finished material expenses. Finally, we will discuss several tips on what to do next.

Metal prices continue to fall across the board

As you can see, metal prices are down significantly from just a year ago.

  • Aluminum ingot: 30%
  • Aluminum MW premiums: 18%
  • Spot price of stainless steel (304): 32%
  • Carbon steel (CRC): 49%

Map spend-price graphs

To capture the full price drop, buying organizations will want to look at the month in which they established last year’s contract. However, they must also determine whether or not they used an index and/or agreed on a specific price. Next, companies should take a price chart/report such as the MetalMiner MMI chart or the 12 month chart.

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They can use it to map price drops and determine a starting point for contract negotiations. For some metals, buying organizations will also need to track price escalation for adders and extras. These include things like coatings, films, Midwest premiums, surcharges, and more. Tracking these changes should help separate fluctuations in base prices from other variations.

In terms of parts and components, simple theoretical cost models can help procurement assess appropriate cost reduction levels. These models include the percentage of content from the metal from other elements and added values ​​that make up the total cost. Finally, alongside falling markets, using a contraction index such as CRU or a 30-day average price might make the most sense.

Slowing economy requires renewed focus on cost reduction initiatives

By closely following underlying metal price trends, buying organizations will find themselves in a strong negotiating position. This is especially true compared to recent years. The combined benefits of communicating open and honest about anticipated purchase volumes, building relationships with new suppliers, and identifying alternative suppliers to mitigate global supply chain risks will help customers see more favorable metal prices throughout 2023.

By Lisa Reisman

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