Raw Materials: What is Your Strategy?
This is article is part of a series of monthly articles produced by Harbour Results for PMA’s MetalForming Business Edge e-newsletter. Click here to view the full collection of articles.
The chip shortage within the automotive industry has highlighted the nature of global supply to Americans that the metalformers have been all too aware of for years. Flat-rolled steels, aluminums and copper alloys are not 100% domestically produced and therefore subject to forces of global supply and demand. To get a sense for how these global supply and demand forces are impacting our domestic supply for metals, Harbour Results, Inc. (HRI) spoke to two PMA members who have been in the business of processing and distributing specialty metals to metalformers in North America.
Red Metals
Dan Kendall of Aeris Advisor spent 40 years of his career in the customization and distribution of flat rolled copper alloy strip.
Q: So, Dan, what’s been happening to copper prices?
Copper has been running in a range of $4.35 to $4.55 per pound. The consumer and industry response to COVID and a return to spending on housing and infrastructure drove copper pricing up, much like other commodities. One of the big challenges to pricing stability now is shipping and logistic constraints to get materials into the U.S., which has driven disparity between the market prices on COMEX (Chicago) and LME (London). Another volatility factor impacting copper today is political uncertainty abroad that could lead to conflict and upset supply or demand.
Q: What might happen to copper prices in 2022?
There are no foreseen disruptions in raw supply at this moment: neither at the mines nor the mills. But there are challenges in aligning mining to smelting to copper casting and rolling that will have short-term effects. I don’t see any real market deficits until late 2023 or early 2024 as copper use in global infrastructure, smart homes, and electric cars grows. Those trends combine to be inherently positive for copper demand. Current copper prices are supportive of increased investment in mining of copper despite lower ore concentration.
If the Federal Reserve moves forward with interest rate hikes and strengthen the dollar, we could see copper prices soften since most of the raw supply is mined outside the U.S. Although copper might be positively viewed as a safe haven for some moving away from Wall Street that might lead to an overcorrection.
So, my view we will stay range bound as I comment above near term. Yet, barring any geopolitical factors I see long-term downward pressure on copper.
Q: What about lead times?
Lead times are out to 26 weeks, and for some less-used alloys out to 46 weeks. Some alloys are on monthly allocations from the mills. Any lead time less than 26 weeks is likely due to a cancellation. With orders for some alloys out to July 2023 already, I don’t anticipate lead times getting any shorter in 2022. Growth in domestic copper demand in housing starts and in automotive for safety sensors and controls, plus windings, terminals and bus bars in battery electric vehicles is keeping the supply chain busy.
Stainless Steels and Specialty Alloys
Gregg Boucher, president, Distribution at Ulbrich Stainless Steels and Specialty Metals, has been serving the metal forming industry for over 35 years. Ulbrich provides slitting, edging, cold rolling and annealing of strip, drawn fine and flat wires, sheet and shapes. Ulbrich specializes in distributing stainless steels, aluminum, copper, nickel, titanium and nitinol alloys.
Q: What has been happening in the stainless-steel market?
Section 232 continues to restrict imports of steel and aluminum into the U.S. Additionally, Allegheny Technologies Incorporated (ATI) cutting back on North American capacity for stainless steel was another game changer. With the high demand, the domestic mills have been focusing on throughput and utilization by producing the more common, higher volume materials and less of the specialty alloys and grades. Strikes at ATI and Special Metals have also impacted domestic metal supply. With restricted supply and increasing demand, prices increased significantly, and lead times for specialty alloys are out 30 to 35 weeks. Stainless steel supply is still on monthly allocations.
Q: Will the market change for 2022?
Prices are unlikely to drop in 2022 and may see additional increases but not as by as much as we’ve seen to date. While the Section 232 tariff on metals from Europe has been replaced by tariff rate quota system, the European mills are focused on serving their customers in Europe. Aerospace demand has remained low and as it begins to return it will put greater pressure on supply of aluminums and specialty alloys. And, the shift to electric vehicles is increasing demand on other materials, such as nickel.
Q: What are service centers doing to work through tight material supplies?
With stainless steel and other alloys on allocations, we are working to ensure we have enough material for our long-standing customers. We are unable to bring in extra material to have available for spot orders, so we are constantly communicating with our customers to understand their expected demand. We also are working to communicate with our customers about what is happening in the market so that they can work with their customers for forecasts and deal with price increases.
What’s Next?
It is clear that materials availability and pricing will continue to challenge the industry in 2022. In the near term, it is important for businesses to keep the lines of communication open with their suppliers and customers and collaborate to ensure demand is met in a timely basis. Additionally, looking to the future, metalformers must continue to monitor raw material pricing as marketplace changes such as the electrification of everything – cars, lawnmowers, boats, etc. – demand more of the same metals you are competing for.
