What's the price of Stainless Steel, when you need to buy the raw material, the metal sheets?
An how is this price determined?
We all know all too well what Stainless Steel is: an alloy. This meaning it is obtained by combining different metals, that is iron, carbon, chrome, nichel and some more depending on the alloy type (aka: the AISI number).
How is the price of it determined?
A number of factors impact on the price build-up of the raw material, even if levelling for the service and transportation.
It's a fact, that the price of some of the components have a high impact on the resulting final price of the alloy, leading procurement department to defining contracts basing their choices on two elements: the Base Price Component and the Extra-Alloy Price Component, the former being defined yearly and the latter at each delivery, based on some nasty "Extra-Alloy Indexes", specific of each steel type.
These indexes are currently, mostly calculated, i.e., based on previous month price for Chromium and for Nichel and subtract 3,750 €/ton for Chromium and 777 €/ton for Nichel.
The difference between the current prices for Chromium and Nichel are the Extra-Alloy index components and are used to calculate the actual, current price according to the percentage ratio typical of each different AISI type steel.
Prices can greatly change in range, during the years.
The price of chromium and nichel and other components can vary according to both the demand-offer law and also other factors can impact on price determination, such as extraction technology, labour cost, geopolitic and several others.
The above figure shows the value of chromium and the variation of its price in the past ten years.
It is evident how - see the orange line - the price bumped up and down in the first two years, then stabilised, then bumped again in these later months.
Similarly, Stailess Steel price for AISI-304 steel - containing a 18/10 ratio chromium/nichel showed a great deal of variation during these later months, even when considering different providers (see the different lines).
This analysis can teach you some insight on how it can be difficult to determine the best purchase price for raw materials in this market.
It clearly is a land on which only experienced procurement managers with years of expertise and the subsequent access to analysis tools and insight information can thrive and prosper, making sure production costs stay in line.
Rely on the experts: it's always the best choice, and if you're planning on creating a production line of your own: make sure you hire an expert on this.
It's all for now.