A FIX FOR PRICE CREEP

Companies that lack firm control over their supply of raw materials, such as steel, titanium, aluminum, and nickel alloy may be destined for failure. The trouble begins when their cash-to-cash cycles ? the time it takes to receive payment for product ? lengthen. This leads to the realization that they must go global to meet their need for raw materials, especially since no new large mills are being built in America. That's fine, but then quality becomes a major issue, because various nations set different standards and chemistries.

One sensible solution to the problem is to maintain an inventory of various metals. But in this lean era, that's easier said than done. It takes a huge financial investment to maintain stock of expensive grades of material such as nickel alloys and titanium. While 20-20 hindsight suggests such an investment would have been wise ten years ago, today there are even more risks. Titanium now costs more than $50 per lb. Only two years ago the price was $15 per lb. If prices continue to climb this quickly, all is well; but what if they suddenly decline?

Some firms with decades of experience had the foresight to stock up while prices were reasonable. For example, All Metals & Forge (Parsippany, NJ) can quote delivery times of 8 to 10 weeks because it has developed global relationships and an expertise in a broad array of services: steel center, forge facility, custom melt operation, custom bar producer, and metals information resource. All Metals & Forge is also an ISO9001:2000/AS9100 and EN9100 registered and certified company.

Lew Weiss, president of All Metals & Forge, believes the raw materials squeeze will continue for years to come with some ups and downs. "I've been playing this game a fairly long time and I have a pretty good feel for the market place. I believe what the industry is experiencing now is going to continue for a number of years into the future. As a result, we take on a greater role in inventory management than perhaps other companies do."

Even in the face of increasing demand and diminishing supply, today's specialty metal suppliers utilize numerous internal advantages and external resources to place small and large volumes of specialty metals into the hands of manufacturers in a timely manner at predictable price points. As a result, manufacturers can maintain production schedules and stay within budget in order to retain competitiveness within their particular market.

A number of factors account for the present-day challenge that manufacturers face in obtaining raw metals, not the least of which could be referred to as the "China Syndrome." At the same time, China plays a unique role in cornering supply, snapping up defunct steel mills from the rust belt areas of the U.S., putting them on barges to China, and then reassembling the plants with modern updates. To feed these mills, China sucks up huge quantities of scrap metal from all over the world. To a lesser degree, India's booming demand for goods also contributes to the migration of scrap and specialty metals to the Far East, further upping demand.

With the resultant shortage of scrap metal, steel in the U.S. has to be made from newly mined ore, which is more expensive than charging the furnace with scrap. This process also requires coke, made from coal ? and coke prices increased 36.2 percent in 2005 alone. By some accounts, metal commodity prices rose by 180 percent during the 2002-2006 timeframe. As an example, the spot price of nickel alloys on the LMA in 2005 hovered at approximately $25,000 a ton, whereas current prices run about $40,000 a ton. Over the same period, titanium jumped from $15 to $60 per pound at its peak.

For manufacturers, price creep is bad enough. But even more insidious is the damage wreaked upon a production schedule because of delays in obtaining materials. Some mills and downstream distributors have quoted delivery times up to 80 weeks, an eternity in today's manufacturing environment.

In this manner, niche suppliers take on a greater role in inventory management, stocking a wide variety of frequently requested metals such as stainless PH grades and tool steels, along with alloys of aluminum, carbon steel, cobalt, magnesium, molybdenum, nickel, tantalum, titanium, and tungsten. This way enables many metals to be shipped on a JIT basis at a stable price. In some cases, delivery times can be reduced from one year down to 8-10 weeks.

The key to any niche supplier's speed is the relationships it maintains with mill sources and suppliers of raw materials. Specialty metal suppliers also apply a global perspective to get the big picture on predicting the future availability of metals so that they can stock up in advance. Besides getting a fix on expensive grades of material, some specialty suppliers provide additional value by custom melting materials to create extremely hard-to-locate alloys for exacting aerospace, petroleum, defense, automotive, and marine applications.

In-house forging operations that include rolled rings and custom hand-rolling of bars in shapes such as round, flat, square, hexagonal, as well as custom shapes and in-between sizes not available from mills or large service centers is another plus provided by specialty suppliers. Offering forms close to spec tolerances helps manufacturers reduce the time and expense of turning or cutting bar down from much larger pieces.

Other added-value services customarily provided by some specialty suppliers include: cold and hot forming, heat-treating, cutting, machining, extrusions, and rolling and welding operations?all of which helps OEMs shorten the duration between receiving materials and turning out finished products.

All Metals & Forge are prospering in difficult times because they did two things right. First, with the help of expert analysts, they looked into the future and determined early that shortages would be the norm. Second, they began sourcing metals globally before competitors saw the writing on the wall. Since time is money, shortening delivery time of metals helps resolve a complex matrix of concerns. If you wait 50 to 60 weeks for materials, then need another 12 weeks to produce your product, your company is vulnerable to the many changes that can occur in the global economic environment throughout such a long interval. To avoid the pitfalls, you almost have to look for a supplier who can get you material fast.

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All Metals & Forge, 239 New Road, Parsippany, NJ 07054, 973-276-5000, Fax: 973-276-5050, www.steelforge.com.