Sheet Metal Prices Continue to Rise, Hurt Margins

Our input costs are quickly rising. The load of metal I received Friday afternoon was the highest metal has been in over three years and until oil and other commodities stop rising, I see no end. A 25% increase in our metal price since the end of the fourth quarter 2010 is a tough pill to swallow. This scenario is a killer for our business because
of how small we are and the type customers that we service. With business being steady to slow, the chances of just going out and getting more work is a fool's errand at this point because it just isn't there. Competition for jobs is tough and the bigger companies are cutting prices to keep their employees working and we just can't compete in the bidding process. We live on the scraps from these bigger jobs and the less of them there are, the less scraps to go around.

A main advantage of being a giant corporation is that you can lock in costs when the opportunity presents itself and even hedge those positions if possible. This advantage is magnified in scenarios of rising input costs. This doesn't mean that they are totally out of the woods when prices rise, but they definitely have a better chance of surviving than small businesses or micro businesses like ours.

As a micro business we can only afford to buy so much material at any given time, which can be challenging as it is. The most I may purchase in a given week is 40-60 sheets of metal, less when sales are slow. This is not near enough to lock in any type of pricing with supply houses who have order minimums and means that we are at the mercy of the current market. The fact is, we can only keep prices at certain levels for a small amount of time in these situations. These costs are passed on to the customer almost as soon as we see the prices start to tick upwards. As much as it hurts to do so and may hurt sales more, it's the only thing a micro business like ours can do to stay alive.

We try to keep our customers as informed as we can in these situations and most are very accepting of why prices may be rising. All we can do at this point is track our costs closely and see where we can save some money and keep the customers costs down. However, without sheets of metal we have no business, so cutting costs elsewhere is a must and its what we will do if necessary. On the flip side and even more important, if we have no customers to buy that metal we have no business.

The next few months entering the summer cooling season should be interesting.

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Posted on April 3, 2011 and filed under Sheet Metal.