Via AG Metal Miner
Most metal prices experienced considerable drops from price levels seen just a year ago. Indeed, excluding lead, all non-ferrous and ferrous metal prices appear considerably below price levels seen in 2021. Most suppliers continue to stay quest amidst this decline, opting to place the onus of cost reductions on procurement. That said, detailed should-cost models for semi-finished materials can help drive double-digit cost savings for carbon steel, aluminum, and stainless steel.
2023 will be the first in several years where metal prices will favor buying organizations over suppliers. This dynamic provides a meaningful opportunity for buying organizations to recoup funds from 2020-mid 2022 price increases. However, to reap these benefits, buying organizations will need to understand precise price drops. This applies not only to the exchange-traded portion of metal buys (e.g. ingot prices) but also to the price drops for many of the costlier elements that make up the total cost. Such elements include price drops for conversion premiums, freight rates, MW premiums, surcharges, and any other add-ons applied to products in rising markets.
Every manufacturing organization that relies upon semi-finished metals or parts and components containing metal should see these cost-downs for 2023. This is true regardless of both industry and demand.
In this post, we will explain the current metal market price trends. We’ll also explore what types of cost-savings you can expect for your semi-finished material spend. Lastly, we’ll discuss several tips for what to do next.
Metal Prices Continue to Decline Across The Board
As you can see, metal prices are down substantially from just a year ago.
- Aluminum Ingot: 30%
- Aluminum MW Premiums: 18%
- Stainless Steel Spot Price (304): 32%
- Carbon Steel (CRC): 49%
Mapping Spend-to-Price Charts
To capture the full price declines, 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 utilized an index and/or if they agreed upon a specific price. Next, companies should take a price chart/report such as the MetalMiner MMI chart or 12-month chart.
They can use this to map out price declines and determine a starting point for contract negotiations. For certain metals, buying organizations will also need to track price escalation for adders and extras. These include things like coatings, films, Midwest premiums, surcharges, etc. Tracing these changes should help separate base price fluctuations from other variations.
In terms of parts and components, simple should-cost models can help procurement assess the appropriate cost-down levels. These models include the percentage of content coming from metal from other elements and value-adds that make up total cost. Finally, in sideways to falling markets, using a contracting index such as CRU or a trailing 30-day average price could make the most sense.
A Slowing Economy Requires Renewed Focus on Cost Reduction Initiatives
By closely following the underlying metal price trends, buying organizations will find themselves in a strong negotiation position. This is especially true when compared to recent years. The combined benefits of communicating openly and honestly about projected purchasing volumes, building rapport with new suppliers, and identifying alternative suppliers to mitigate global supply chain risk will help customers see more favorable metal prices throughout 2023.
By Lisa Reisman
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