By Fred White( from ThomasNet) Raw materials prices continue to cut into profits with little relief in sight. If prices continue to rise and solutions to these problems go unaddressed and worsen, they cannot help but undermine the future health of U.S. manufacturing. If they haven't already, manufacturers might want to brace themselves for more steep cost hikes. AMR Research and The Manufacturing Institute's May-released "The Hidden Backbone of U.S. Manufacturing: Weakening Under Chemical Cost and Supply Pressures"report, from research based on a survey of 165 manufacturers, gauged "the importance of the chemical infrastructure to U.S. manufacturing as a whole, manufacturers' expectations for chemical supplies cost and availability in the future, and the alternate sourcing plans, if any, they have to respond to the problem." The Manufacturing Institute is the research and education arm of the National Association of Manufacturers (NAM). In the report, 90 percent of the 165 respondents said they are experiencing chemical cost increases, including 62 percent who say the increases are substantial. Moreover, the survey specifically found:
• Overall, 55 percent have significant, direct dependence on chemicals for their production.
• Forty-three (43) percent or companies survey see domestic chemical capacity decreasing, against only 20 percent that see it increasing.
• Half the companies surveyed say they cannot replace these materials with any substitutes, while 40 percent say it is possible - but expensive - to find replacements.
• On average, manufacturers will shift 25 percent of production abroad if chemical issues of pricing and supply are not solved. This could cause a ripple effect from large companies down to small companies as plants close or are downsized and as local suppliers lose their large company customers. The reason for all this is rising raw materials prices, and manufacturers continue to grapple with what seems to be a never-ending trend. Domestic chemical supplies are a vital raw material to most manufacturers, of course, but the gloomy picture of raw materials extends beyond chemicals. For one, metals prices continue to increase. IndustryWeek this week points to the following numbers:
• Copper is hovering near $7,000 per metric ton - compared with about $1,500 per metric ton in 2003;
• Zinc, steel and nickel, among other metals, have also risen substantially;
• “Platinum prices rose 14 percent in 2006 over the previous year," according to catalyst manufacturer Johnson Matthey, "partly due to an increase in demand for use in light-duty diesel vehicle autocatalysts"; and
• Tin's price may continue to rise. There is some potential good news, though. Commodity prices may be at or near their peak, Manufacturers Alliance/MAPI chief economist Dan Meckstroth tells IndustryWeek. Although nickel, tin and uranium may not yet be at a peak (the reason being unprecedented demand from China, which is sucking up all kinds of raw materials and then manufacturing products and shipping them elsewhere, including back to the U.S., Europe and Japan), copper has fallen from its May 2006 high of $8,800 per metric ton, and "steel also has likely reached its peak price," according to Meckstroth. If your company's products use these metals and other key costly materials, here are a few ideas of ways to cope (via IndustryWeek):
• Buy in bulk.
• Adopt long-term process, engineering and supply chain strategies.
• Substitute lower price elements for higher price metals.
• Reduce the proportion of higher price commodities.
• Involve the supplier to help develop new products.
• Integrate or co-locate several plants allowing waste streams at one plant to serve as fuel for another facility.
• Develop alternative raw materials.
• Persuade the federal government to loosen restrictions on exploration to create more supply. Today's increasingly global supply chain has brought U.S. manufacturing into ever closer contact and partnership with producers around the world. The AMR-NAM research indicates that "U.S. manufacturing will be competitively disadvantaged because of a cost-driven domestic chemical industry abroad," which supplies a massive amount of raw materials to so many sectors. If prices for raw materials continue to rise and solutions to these problems go unaddressed and worsen, they cannot help but undermine the future health of U.S. manufacturing. Clearly, it is not only chemical manufacturers whose business is at stake, but also the thousands of companies that use their chemicals to make everyday products, technologies, pharmaceuticals and auto parts. As the report's authors note: "Weakness in this critical link will compromise the entire domestic supply chain."
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