Metal Price Surfing

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Sourcing Strategies

Not that long ago I taught my five year old how to subway surf. For those of you who have spent any time in New York City, you know what I’m talking about. Subway surfing is the art of being able to stand up on a moving subway without holding on and without falling. Much like ocean surf-boarding, if you “ride the wave” you can prevent yourself from toppling over. On Friday I spoke with a company, a big buyer of steel wire and sheet, who said something very interesting about metal prices in general. He said, “the market is very confusing because one day something is up, the next it’s down….prices don’t move the way they used to back in the day.” His comment got me thinking….if your company does not “play the market” does the day to day volatility matter? Well, that depends upon whom you ask. But as we like to say around here, “don’t be playing the market…if you play the market, you’ll likely lose.” And it occurred to me that trying to bet the market is a lot like, well, gambling. You’ll win some, you’ll lose some, but net net you will more likely lose than win.

So how should companies think about the barrage of “daily prices” that come via email alerts? How could MetalMiner challenge these types of news feeds that send these daily updates given it’s daily global metals application, MetalMiner IndX(SM)? How is it that I personally don’t always know the exact closing price of aluminum? In short, it’s because I consider myself a trend watcher, not a data point junkie. I only care about the daily closing price as “a point of reference in time”. I’m thinking much more along the lines of, where is the line going? Where did it come from? How steep is the line? And how does that line compare to the line in China, in India etc? Because at the end of the day, the trend should be the guiding force behind metals purchases decision-making. Companies with a metals buying strategy have set in place price thresholds for various activities: buying forward, buying on the spot market, re-bid the category etc. They have price trigger points for looking at what-if scenarios etc. They respond to the market with a calm, cool demeanor because they know how to surf.

These companies are calm, cool and collected as they take in their daily price information because they are watching the line, not the point. So here is my question of the day, do you surf or do you tip over?

–Lisa Reisman

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