Metals prices have risen sharply since January 2021. These price increases are due to several factors. Fortune Magazine reported on July 8, 2021 that steel prices are up 200%. The benchmark price for hot rolled steel hit $1, 825 during the last week of June. Pre-pandemic prices were in the $500-800 range.
Why are metal prices high?
Some of the key drivers of the current price trend go back to the early stages of the pandemic, when steel mills cut production fearing a recession related to the pandemic. When American households found themselves unable to go out for entertainment, they started spending money on items for the home, such as grills, refrigerators and other steel-intensive hard line goods. This new demand source created a supply issue for steel.
Americans are returning to travel, and the spending on the home goods appears to be falling. The steel demand, however, may not see a significant decline. Demand from the manufacturing sector is returning more rapidly than anticipated. The growth in travel may result in a corresponding growth in fuels demand. Oil producers and refiners, major consumers of steel, will be requiring more steel for maintenance and production expansion as fuel consumption increases. Automakers, impacted by the microchip shortage, are limiting their production. Once the chip supply is resolved, (expected around the end of the year) the demand from this sector should also return.
The consumer price index released July 13th reported the core inflation rate rose to 4.5% from 3.8% last month. The U.S. had not seen this rate of growth since 2008. Supply chain transportation, i.e. shipping and freight costs, rose 10.4% annualized. This cost is ultimately passed down the supply chain in price increases for the items being shipped. Freight rates are calculated based on weight and size, two factors that are not to steel’s advantage.
The situation for aluminum is very similar with many of the same factors in play. Aluminum’s percent increase may not be as high as steel, but it is significant. There are many projections on when metals supply balances and prices decline. Most suggest the first or second quarter of 2022. Many suppliers have told Keddie Enterprises that their steel and aluminum mills are not taking any new orders for 2021 deliveries.
What Keddie Enterprises is doing to help our customers.
Keddie Enterprises has taken several steps to help our customers mitigate some of the price increase. We utilize a linked supply chain approach. This approach includes the whole supply chain from our suppliers, through our production and to the customers.
- Keddie Enterprises is in constant contact with our metal suppliers, obtaining market intelligence on price trends.
- Keddie Enterprises has broadened our sourcing for materials to obtain the lowest possible price. We have found that some suppliers increase costs when new material hits their floor. The lowest bidder one week may not be the lowest bidder the next. We bid every new order.
- Keddie Enterprises is notifying our customers of coming price increases. We suggest our customers look at their minimum inventory levels and consider ordering stock for a longer shelf period, perhaps through the end of 2021.
- Keddie Enterprises has developed a “lot” size concept, in which Keddie Enterprises advises customers of the best quantity to order which minimizes setup time, scrap metal waste and reduces other costs (such as plating and painting) on a per part basis. We also use this approach with our suppliers, to reduce shipping and other costs.
- Keddie Enterprises suggested to one of our customers that they purchase the raw material that would be consumed in their parts through the end of the year. We provided the estimated quantity by grade and size. Keddie used their supply chin to obtain bids for the customer. The customer purchased the material and it is stored in a designated area at Keddie Enterprises. This material is segregated and is used only for that customer. When the customer places an order, Keddie Enterprises purchases a corresponding quantity of the sheet material from the customer at the customer’s purchase price. Keddie Enterprises committed in an agreement not to raise any prices on parts fabricated from this material until the stock is completely consumed. The customer was guaranteed a pricing through the end of the year. This agreement enabled the customer have a price lock through the end of year and a secure supply of material.
These are some of the things Keddie Enterprises is doing to link our supply chain during these uncertain times. We look to work with our customers to both party’s mutual advantage. If your machine and fabricated parts producer is not doing these types of things for you, maybe you should consider contacting Keddie Enterprises. Contact us. We would appreciate the opportunity to help.