Manufacturers and fabricators all over the country are grappling with soaring inflation. Oil and metal prices have been affected by recent geopolitical uncertainty and the continued disruption of supply chain imbalances. How metalworking companies respond to these economic pressures could not only define whether they will endure in the short term, but if they will be positioned for growth long term.
With that in mind, here are three considerations when developing a strategy for responding to rising costs.
1. High oil and metal prices might not be short-term challenges.
Increased oil prices are projected to endure into 2023. According to information released by the U.S. Energy Information Administration in early June, manufacturers can expect that although the current upward pressure on energy prices will lessen, “high energy prices will likely remain prevalent in the U.S. this year and next.”
Without question, higher fuel prices are already impacting transportation costs. With certain types of cutting fluids composed of up to 85% severely refined petroleum oils, higher oil prices also severely impact annual fluid expenses as well.
According to Federal Reserve data, the price of metals and metal products rose 24% from March 2021 to March 2022. Although material prices were retreating since their all-time high in March 2022, it is expected that demand for green metals—metals that contribute to lower total life cycle carbon emissions—will continue to rise. According to Industry Week, prices for aluminum, which reduces vehicle weights to increase fuel efficiency or battery range, surged to above $3,300 per metric ton in 2021. This was the highest level since 1988. It is worth noting that products with green metals are shown to garner a 25-30% pricing premium, according to BloombergNEF.
2. An assertive response to inflation may be the pathway to a more profitable future.
Amid times of economic turbulence, it may be tempting to sit tight and ride out the uncertainty. However, a recent Forbes article suggests that manufacturers’ competitive advantage down the road is at stake and, therefore, a more proactive approach may be warranted.
“Becoming better equipped to handle inflation means becoming a more modern, more competitive manufacturer, one with a product strong enough to justify charging a premium,” the piece states.
The article goes on to suggest that, after instituting incremental price adjustments, fabricators should focus on the long game “by investing in people, wages, and smart technology—no matter what—in 2022.”
3. Looking at your metalworking waste streams—both materials and processes—will reveal potentially sustainable bottom-line savings.
Improving metal scrap processing and waste fluid management can help fabricators lower expenses in several ways: