Living in a materiaL worLd - Minnesota Precision Manufacturing ...

More documents

Recommendations

Info

COVer | RAW MATERIALS STEEL USE AROUND THE WORLD Other Europe 3% New EU 2% EU 14% CSI Former (USSR) 13% Source: PMPA NAFTA 13% Others 10% OtherAsia 15% Impact on Manufacturers Not all manufacturers are being affected by material bottlenecks and price swings, however. While some are scrambling to fill inventories, others have barely noticed any changes at all. Kurt Manufacturing Company Inc., which purchases large amounts of aluminum and steel, hasn’t experienced any problems ordering raw materials — only steady price increases. Over the last 6 months, the company has been ordering quite a bit of metal to keep up with orders, and Brad Carlstrom, Kurt’s purchasing manager, believes it’s a buyer’s market. “The supplies still seem to be strong,” he said. “I guess it depends on what type of metal you’re chasing, but for basic aluminums, steels and stainless, I haven’t had any problems. On the other hand, a real uptick in demand will cause issues. There’s no question that the service centers around the Twin Cities have been a cushion for us.” Carlstrom said he hasn’t noticed a difference in lead times, either. However, he has noticed a steady increase in the price of aluminum, which crept up to over a dollar per pound earlier this year. “But that’s going to turnaround,” he said. “I’m anticipating that quarter by quarter, we’ll see a drop in aluminum prices.” It’s a different story at Cass Screw Machine Products Company, which purchases mostly carbon rounds to make screw machined products. China 31% Japan 8% In the fall of last year, Kalei Ensead, who works in the company’s purchasing department, began noticing that some distribution centers couldn’t fill her orders, especially if she needed larger quantities. She said she wasn’t ordering anything special, just standard grade carbon steel. “We’re getting busier and looking for materials that just aren’t there,” Ensead said. Now, instead of buying 10,000 pounds of stock from one vendor, she is buying it from three. In addition, Ensead is dealing with higher prices. “When you run into a situation where availability is slim, you start going outside of your normal source and you end up paying more,” she said. “Sometimes it’s cheaper to pay more for a product than to have a machine sit for 3 days.” Impact on Distribution Centers Demand seems to be picking up at distribution centers, although it is nowhere near the level of early 2008. The question is whether the demand is temporary or long-term. If it’s temporary, many distribution centers will continue to operate at less than full capacity. EMJ Metals Orders are way up at EMJ Metals from this time last year. The company is on pace to do over $100 million in sales this year and beat last year’s revenue by 20 percent. EMJ is owned by Reliance Steel & Aluminum Company, which is one of the largest metals service centers in the United States. Mike Goepfrich, general sales manager, said he doesn’t think most manufacturers are having problems with availability, especially if they’re ordering standard grade, but it depends on where they order it. He said he’s seeing more people who are normally mill buyers turn to distribution centers for their metals because they can’t wait 6 to 12 weeks. “I’ve never had a customer call me and tell me they’re going to fire me because of a price,” he said. “But I have had people tell me they’re going to fire me because I didn’t have the stock they needed.” In the meantime, Goepfrich expects metal prices to increase in the short-term, at least until the third quarter when they may begin to flatten out. Spectro Alloys Corporation When the Cash for Clunkers program went into effect, the automakers were caught off-guard and so were many of their material suppliers. Spectro Alloys Corporation, which converts secondary aluminum scrap into a new alloy, was one of them. The company had been producing at 50 percent capacity when it was suddenly slammed with orders. “We were going to our suppliers and they weren’t able to supply fast enough,” said Alan Gergen, regional sales manager. He believes the supply chain is still tight, resulting in longer lead times and less flexibility in pricing. He attributes much of the shortage to China and India. “If the United States used its own scrap, there would be enough,” Gergen said. “But it’s all being exported. The U. S. government doesn’t really see that as a problem because they see this huge trade deficit and they get excited when we send things overseas.” Cost has been another challenge for Spectro Alloys. At one point a year ago, the basic aluminum alloy that the company produces cost .65 cents per pound. Today it’s $1.03 per pound. Gergen expects to see a market, for raw materials, that is flat to up over the next year. His advice to manufacturers is to budget for the cost of the products they’re making—and stick to it. “Buy according to that budget instead of trying to beat the market,” he said. Chicago Tube & Iron Chicago Tube & Iron is one of the largest steel service centers in the United States, with 10 subsidiaries throughout the Midwest. It was hit hard by the recession. During the first 3 quarters of 2008, the price of scrap was as high as $800 per ton and the company was on track to have a record year. During the fourth quarter, however, orders came to an abrupt halt. The price of scrap dropped in half and so 8 | PRECISION MANUFACTURING May | June 201
COVer | RAW MATERIALS did demand. It proved to be a very bad year for the company. After bottoming out last July, Chicago Tube & Iron finally is seeing a modest increase in demand, although it is down considerably from early 2008. Larry Soehrman, vice president of materials management, said the company is beginning to keep a little more material on hand, anticipating demand to pick up in the second half of the year. However, he thinks lead times are a bigger problem than supply right now. “One of the biggest problems is that most of the mills and distributors are working at less than full capacity,” he said. “So if there’s a slight uptick in demand, it shows up fairly quickly. That’s why we’re seeing lead times increase a bit. It’s not because there’s a problem with supply; it’s because there aren’t as many people working.” His advice to manufacturers is to plan ahead. “If you have any unusual items that are critical to a customer base, you’re better off getting those on order sooner rather than later; because, if there is a ramp up, it will be difficult for suppliers to react as quickly as they did before, because they’re running on shorter hours and shorter staff,” Soehrman said. The Future of the Market Free said he can’t predict when prices will level out again, but he expects them to remain highly volatile this year as the economy gets into fits and starts with recovery. Surcharges, he believes, have become a permanent feature in the market for raw materials used in manufacturing, and shops that offer fixed prices for their products do so at their own peril. He and other analysts will be keeping a close eye on the housing and auto industries. Houses require large amounts of steel, and contractors drive light trucks, which also require large amounts of steel. These two industries are a major part of the metal ecosystem and have a significant effect on supply, demand and price. Natural disasters are another powerful influence on the price of metals. One day after an earthquake struck Chile, for example, copper prices went up 2 percent. Chile is the world’s largest producer of copper and, although the mines themselves weren’t damaged, electricity was interrupted. So how do you intelligently manage risk when the price of your raw material—which may be half your part costs—doubles? “You don’t give firm prices for a year, that’s for sure,” Free said. “The advice I would give manufacturers,” he concluded, “is that it’s probably more important to know where you can find material than what you ultimately will pay for it. I’m not saying give away your product, but price for immediate delivery trumps low price for 2 months out from now.” It’s a material world, indeed. PM Melissa DeBilzan is a contributing writer for Intrinxec Management, Inc. She can be reached at melissa@mpma.com. THE RISING COSTS OF RAW MATERIALS 600 550 500 450 400 Aluminum (cents per pound) Brass (cents per pound) Copper (cents per pound) Nickel Scrap (cents per pound) Steel Scrap ($ per gross ton) China Coke ($ per ton) 350 300 250 200 150 100 50 0 Mar 09 Apr 09 May 09 June 09 July 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Source: PMPA May | June 2010 PRECISION MANUFACTURING | 9
Page 1 and 2: M a y / j u n e 2 0 1 0 M a n u F A
Page 3 and 4: TABLE | OF CONTENTS May | June 2010
Page 5: Make the Right Moves Early in Your
Page 10 and 11: 10 | PRECISION MANUFACTURING May |
Page 12 and 13: shOP | PROFILE Kurt Workholding HuN
Page 14 and 15: Innovation and excellence create a
Page 16 and 17: MADE | IN MINNESOTA Bright (Solar)
Page 18 and 19: Industry Profile Iron range resourc
Page 20 and 21: Industry Profile Iron range resourc
Page 22 and 23: Competing on Value BREAkING THROUGH
Page 24 and 25: shOP | PROFILE LOFTech FINDING a SO
Page 26: ManuFACTURERS’ | MARKETPLACE Tech
Page 29 and 30: MEMBER | DIRECTORY Lifetime Members
Page 31 and 32: MEMBER | DIRECTORY Ideal Aerosmith
Page 33 and 34: MEMBER | DIRECTORY St. Marys Univer
Page 35 and 36: © 2009 MasterGraphics With the rig

Living in a materiaL worLd - Minnesota Precision Manufacturing ...

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?