Global Metals: A Worthwhile Primer
If you're looking for a solid backgrounder on trends in global metals purchases, check out this Purchasing article from last week. In particular, the article looks at the trend towards metals import and export worldwide. According to the article, price arbitrage -- resulting from both lower cost materials and production -- is the primary driver of global metals trade in some categories. Indeed, "offshore steel is cheaper than the products made in North America—in fact, sheet steel products are as much as 60% less expensive from some offshore nations (before adding delivery costs of freight, insurance and tariffs)". However, "prices of nonferrous and precious metals are the same worldwide," according to the article. There are two global sourcing metals experts who I know that read Spend Matters on a regular basis who will probably have far more insightful things to say on this subject, so I'll leave the rest of the analysis of the piece to them.
Jason Busch
Jason Busch
Even on that basis the majority of buyers still see substantial savings on imported steel, aluminum and other non ferrous metal products. Why would that be? Well in the case of comparison to a mill in South Korea or Brazil one may reasonably say lower labour costs, tax breaks, low power costs, lower land costs, absent or low social costs such as pensions, proximity to raw materials - I am sure we could add a few more. But how many of these "advantages" apply to material coming from Germany, Japan, France, U.K. Belgium, etc - front runners as many of the USA's metal supplier. In nearly all respects costs are as high in these countries as they are in the USA. So how do they overcome freight, duty and extended finance costs to serve the US market and still have lower costs than domestic producers? I suspect the answer is they don't, with US mills running at capacity to serve a bouyant domestic market what incentive is there for them to sell at lower prices? Classic economics says this should encourage investment in domestic production but the writing has been on the wall for the last decade or more the only investment in new production capacity is going into LCCS, where the above advantages really do hold true. The reality is domestic producers are to a large extent making hay whilst the sun shines.