Sourcing steel components in 2010? Now might be the best time!

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There are a many reasons to be optimistic about manufacturing in 2010.  Keeping tabs as closely as I do on the manufacturing world signs are good all over.

GM might reopen some plants.

Bloomberg is reporting a sustained 2010 recovery.

The general attitude from everyone I talk to is positive, but I am seeing some warning signs from smart people that tell me Q1 is the time to get new suppliers for steel components into your pipeline and take on some inventory.

Stainless steel production was down 15% globally in 2009.  However, steel production was down 37% in the United States.  What this means is producers took production capacity offline while weathering the recession.  Things are looking up but it is going to take awhile to get back to pre-recession levels.

Tom Stundza of Purchasing Magazine writes, "Most analysts, and several mill management groups, don't think steelmaking is likely to explode upward next year."

So demand is increasing steadily and production is increasing slowly behind it and based on what Tom wrote, VERY slowly.  Additionally, if you saw Lisa Resiman of AG MetalMiner on Fox Business, you know there are going to be some additional pressures on the steel supply.  It is a great spot but the important point is this;  The things you need to make steel, specifically iron ore and coking coal, are increasing in price.

1. Increased demand

2. Reduced supply

3. Core material price increase

4. Artificially depressed recession pricing

You don't have to have a Nobel Prize in economics to know a substantial increase in steel pricing is on its way in the latter half of 2010.  Steel prices are really only starting to rise.  I tried to import this chart to the blog, but unfortunately I couldn't get it to display correctly.

Prices on steel are only slightly higher than March 2009 crash levels and are over 30% down from September 2008 peak levels.

The point?

If you don't accelerate the sourcing time-line on your steel components you are going to miss out on an incredible implied savings opportunity and pay substantially more for steel parts than you have to.  In this climate of recovery we need to change the way we think about direct materials sourcing and take decisive action when opportunities like this present themselves.

How are you planning on accelerating your sourcing time-line over the next few weeks?

David Landsman

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