This is the second of a three-part series on MetalMiner Benchmark. Here’s part one if you missed it.
If data is the new natural resource in business, then when examining the landscape of third-party metal price tools, indexes and services, it’s safe to say that most of them fall into one of three categories:
- They report out the exchange-traded metal (meaning the metal that is traded on a formal exchange, typically a raw material form of the metal)
- Some report alloying elements and minor metals — important for mills and producers but less relevant to OEMs and most metal buying organizations
- They report out only a parameter or two such as alloy and form, e.g. cold-rolled coil (and typically a geography) but don’t get more specific than that
Our own MetalMiner IndX(SM), which we are no longer actively marketing, reports out most of the above and in some cases, by multiple geographies. Helpful? Sure, but limited in a number of key respects.
Limitations of Current Metal Price Indexes
Based on our own analysis and analyses conducted by our readers and shared with us, the three primary limitations of current metal price indexes (including our own) are as follows:
- They aren’t correlated enough with the metal prices buying organizations actually pay. The London Metal Exchange three-month aluminum price plus the Midwest premium certainly goes a long way in helping buying organizations understand the general aluminum price trend, but that still leaves some portion of the price a company actually pays out of the equation.
For example, the 3003 H14 .020 x 48” x 120” sheet that a company actually buys from a service center includes more than what current indexes supply:
- LME three-month aluminum price + MW premium + Conversion Premium + margin + delivery to the customer.
CRU Group publishes a weekly CRC, HRC, HDG and Plate price for several geographies in the midwest but that CRC price is still not the same price as the price for 100,000 pounds of 1011 12 gauge x 48” coil.
- In some cases, other metal price indexes have the form, alloy and grade-level data (see stainless prices from MetalBulletin). American Metal Market also publishes form/alloy/grade data but it may not include specific sizes, quantity breaks or price differences based on those parameters. In addition, some of these may only be updated monthly.
- Current price indexes are all one-sided — They go from the publication out to the reader/user. There is no two-way method of giving your data and getting something back that allows you to compare your purchase price against others in your industry.
Benchmarking is always free with self-service!
Why Form/Alloy/Grade/Size Matter
By providing a means to identify the market price at the granular level of form/alloy/grade/size, buying organizations can now effectively compare the actual industrial prices paid against peers as well as the market as a whole. This capability also allows buying organizations to identify alternative suppliers, pinpoint specific SKUs and areas of opportunity, and strengthen existing supplier relationships.
It’s clear that, indeed, “data is the “new” natural resource in business. In our next post we’ll cover how buying organizations can use these types of resources to lower their average cost.
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