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"Upward Metals Pricing as a Positive Indicator (Redux)"
I know, I know, nobody wants to see higher metal prices. But within some reasonable band, I would (still) argue that it's actually not bad news.
A year ago in this column, I spoke about being encouraged by the uptick in aluminum pricing from the mills. When metals costs rise, most of us are caught in the squeeze between suppliers and customers. Mill suppliers are typically not very flexible when it comes to granting cost concessions - keeping prices the same, never mind agreeing to reductions. On the other side, customers aren't very understanding and many times simply aren't willing to talk about inflationary pressures and price increases.
But I continue to see the slow, steady rise in aluminum prices as not altogether a bad condition. As you'll recall, pricing reached historic highs in 2008 and absolutely tanked in early 2009. Depending on what alloy and product you were buying, it had lost between close to 40% of its peak value.
But we didn't see a double dip in the economy or in manufacturing in 2010. Material pricing from the mills continued to increase. In 2010, we saw two price increases on 6061 plate from our suppliers, amounting to a 10% aggregate increase for the year. It has been suggested that, lacking an economic dip affecting manufacturing in 2011, prices will continue to increase this year. And according to the recent December 2010 Manufacturers Alliance/MAPI Survey on the Business Outlook, activity in the manufacturing sector expanded for the fifth consecutive quarter and there is no prediction of a 2011 dip.
Still, the price of aluminum mill products is off approximately 30% from its peak. If you believe that markets work, as I do, as the manufacturing sector continues to improve we should be seeing higher prices. Likewise, values for scrap aluminum have rebounded from last year by about 15% with values for ferrous and nickel alloys jumping even more.
In the end, if commodity pricing remains in the tank, so do we all.
From all of us at TCI, our best wishes to you for a healthy and profitable 2011!
-John Belzer
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