Rising metal prices abate somewhat, but long-term trend is continuing price increases

Any supply chain starts with raw materials. For many, this includes industrial metals such as aluminum, copper, lead, nickel, tin, and zinc. Steep price increases the last two years—leading to recent historic peaks—prompted Supreme Technologies, which furnishes nickel metal hydride batteries to wholesalers and OEMs, to post the following plea on its Web site last January:

“[The situation] is creating real problems in quoting accurately to our valued customers. We regret this situation but have no choice but to increase pricing to reflect the base cost of manufacturing our products and keep our company in business.”

“There's not much else you can do but tell your customers what you have to do,” says Jim Stepro, president of the Waleska, Ga.-based supplier. Its Web site directs customers to the London Metal Exchange (www.lme.co.uk), a leading global exchange for metal commodities trading, for more information.

Though prices moderated in the spring—including those for nickel, shown in the accompanying chart—it's small comfort for many. For one, the recent falloff is small compared to the hockey-stick jump in prices starting a few years ago. Copper is considered the metal market bellwether, with the saying, “Every boom has a cooper ceiling,” implying that economic booms drive prices up until copper hits a ceiling that chokes off expansion. Nonetheless, the second chart for nickel prices mirrors the trend for all metals over the same period.

Little wonder a recent survey from industry consulting firm Grant Thornton found that among privately held manufacturing companies the world over, the cost of raw materials is viewed as the top business threat in 2008.

Using prices for nickel as an example, the upper chart shows how price rises for a range of industrial metals have recently slowed. However, the longer-term trend, illustrated in the lower chart, is characterized by steep rises in price.

Supply is beginning to improve, Bhar adds, but increasing demand projected over the next 10 to 20 years, coupled with lengthening cycles for locating new sources, followed by lengthy permitting and development of new extraction operations, all posit high metal prices.

“There's no lack of metals in the ground, but it's more difficult to find them because they're more remote and deeper in the earth,” says Magnus Ericsson, director of Raw Materials Group, a Swedish industry advisory firm. “Metal prices will continue to be cyclical, but the underlying demand will be strong for years to come.”

Companies around the world are discovering that “even though they don't consume a lot of metals, the increase in prices significantly affects their bottom line,” Ericsson concludes.