Higher Materials Prices Here to Stay

The question is no longer whether materials prices will continue to rise for North American moldmakers, but rather can manufacturers in this region survive or even thrive given these prevailing trends in the market conditions.

Every month, as part of my Mold Business Index survey, I ask moldmakers a question about the direction of materials prices. Are they going up, heading down, or was there no change during the past month? I then take the responses and calculate an index with a base value of 50. When the monthly index is below 50, it means that the number of moldmakers reporting a decrease in materials prices was greater than the number that reported an increase in prices. When the monthly value is above 50, it means that materials prices increased for the majority of respondents.

Now it must be noted that this index does not measure how much the prices actually rise and fall, but rather the number of respondents who experienced an increase compared with the number who reported a decrease. In other words, the index moves higher when more people experience a rise regardless of whether the increase was a small bump or a sharp upward spike. This index is simply designed to capture the basic trend (up, down, or sideways) in materials such as steel or resins.

So even though we do not measure the magnitude of price hikes or declines, the message that should be gleaned from the accompanying chart is both alarming and enlightening. And that is that materials prices almost always go up. Except for about a one year period during the depth of the most severe economic recession since the Great Depression, the strong majority of mold shops tend to pay more for materials with each passing month. This trend in our index is corroborated by the trend in our own monthly Resins Price Index as well as the Producer Price Index for steel that is compiled and reported every month by the Bureau of Labor Statistics.

This long-term uptrend in prices is not confined to just steel and resins. The prices for many other commodities are also at historical highs. Crude oil and gold tend to get the most notice in the media, but recent developments in the markets for commodities such as rare earth minerals and potash are also starting to attract attention.

The reason for this is becoming increasingly obvious. The fastest growing economies in the world (China, India, and Brazil) also have large populations, and therefore a huge appetite for manufactured goods of all types. So the days of cheap prices for energy products and manufacturing and construction materials are over. And thus, the question is no longer whether materials prices will continue to rise for North American moldmakers, but rather can manufacturers in this region survive or even thrive given these prevailing trends in the market conditions.

It will not be easy, and there will no doubt be some casualties, but I believe that these trends are as much an opportunity for domestic manufacturers as they are a threat. North American manufacturers must design and manufacture products that benefit from the rise in commodities prices. The prices for mold steel and plastics resins are going to increase, but means that the value of plastics parts that are either substituted for steel parts or reduce the need for burning crude oil or natural gas will also increase. Domestic manufacturers, including moldmakers, must continuously strive to be part of the solution and not part of the problem. If the problem becomes rising materials prices, and it will, then manufacturers that supply a solution to this problem will have a much greater chance of succeeding. We must manufacture things that reduce our needs for commodities that we cannot provide for ourselves or are so expensive that we must make other choices. Moldmakers can choose to argue with or complain about the direction of the market, or they can choose to take advantage of it.

 

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