Steel Shortages, Rising Prices... What to Do?
April 27, 2021
Materials are the core of our business, and yours. Tangible products are made from metals, resins, polymers, and everything in between. Once built they are usually protected and transported by cardboard and wooden packaging.
In past six months, we have seen market supplies dwindle to historical proportions while the price of materials continue to skyrocket as every available piece of raw material is gobbled up.
It is not just commercial raw materials. We have all seen it in consumer products as well. If you have been to your local lumber yard or home improvement retailer you have seen the cost of 2×4’s and plywood more than double!
Materials are the core of our business, and yours. Tangible products are made from metals, resins, polymers, and everything in between. Once built they are usually protected and transported by cardboard and wooden packaging.
In past six months, we have seen market supplies dwindle to historical proportions while the price of materials continue to skyrocket as every available piece of raw material is gobbled up.
It is not just commercial raw materials. We have all seen it in consumer products as well. If you have been to your local lumber yard or home improvement retailer you have seen the cost of 2×4’s and plywood more than double!
Unfortunately, the reality is that this is happening in the commodities of steel, aluminum, stainless, coated products, resins, wood, and paper products that we use every day to build your product. It does not end there, since many sub tier suppliers use these same materials to make hardware, fittings, cables, seals, electronics, and every other component we buy. This has a direct impact on the cost of your product.
In the chart below, we track certain grades of steel by price per a specific sheet size as a constant. Keep in mind this is the market price, and not the final negotiated price with our qualified suppliers. However, the chart represents the percent change in price over a two year timespan, and this chart can be duplicated for almost any commodity.
If you are a current customer of ours, you have received regular communications from us regarding the cost of raw materials, and you have been working close with our Customer Account Team since late October when we first notified you about potential increases.
You can see by the chart that prices were relatively stable outside of a small increase at the beginning of the pandemic. Over the summer prices decreased slightly while businesses and consumers processed the reality of the situation. Steel mills and other raw material producers idled their production for a variety of reasons: future outlook, COVID shut downs, employment concerns, and their own supply chain.
As the country has adopted the “new normal” and we inched closer to a vaccine the demand for production rose quickly and raw material suppliers were caught unprepared. Suppliers were slow to respond and speculative buying quickly bought up commodities in the market whether they were needed or not. Remember trying to find toilet paper in March?
What Should You Do?
Mercury has been proactive in buying and stocking common materials to mitigate against shortage risks. If your product uses specialty materials or has uncommon hardware or components we need to work with you on securing these items. Fortunately, Mercury has a physical presence in three US states as well as four countries to leverage sourcing of hard-to-find items.
Time is the best approach and we suggest contacting your Customer Account Manager immediately to place orders well ahead of normal lead times. You can see by the chart that mill lead times in March were out over 25 weeks! Some products are no longer available. We have been informed that certain grades of Stainless Steel simply do not exist right now.
We suggest to look out over the next 6 to 8 months and immediately place orders to secure materials and manufacturing. Your Customer Account Manager will work with you to order only the required materials so you will not incur additional charges. The more time we have, the easier it will be to secure material in our extended supply chain and ensure your continued supply of product.
What is the future?
We cannot give speculative advice as we do not want to mislead our customers, or anyone for that matter. If we had a crystal ball we could tell you exactly what will happen, but then again if we had a crystal ball we probably would not be here!
Will this end? Yes, eventually. Capital markets tend to respond quickly to demands. However, the raw material supply market in the US is very complicated, specialized, and burdened by regulations, foreign influences, and quite frankly, smaller than it used to be. Our original guess was that we would see some softening in April and May. We have not seen May’s numbers yet, and we are not holding our breath.
Will prices come down? Most likely. Once there is sufficient supply they should come down and level off at a new equilibrium. Will they return to where they were? We simply do not know. In our past experience of material market increases we tend to see they come down but settle in a little higher than they were before – a “new normal”. Of course inflation will play into this as well.
We simply cannot give you advice on whether to buy now, at a high price, or wait and hope the market comes back down. This decision has to be yours, and the level of risk and reward you want to take after understanding the facts.
We urge you to contact your Customer Account Manager today to discuss options. They will be straightforward and fair with the current pricing situation for your specific product and what options you may have!
Copyright © 2021 All Rights Reserved by Mercury Corporation
Copyright © 2021 All Rights Reserved by Mercury Corporation