In the United States, the cold-rolled-steel sheet and strip index advanced 7.6 percent in March following a 4.2-percent decline in February," says the U.S. Bureau of Labor Statistics. Prices for hot-rolled-steel sheet and strip, aluminum mill shapes, nonferrous wire and cable, secondary aluminum and copper and brass mill shapes advanced at faster rates compared with the prior month.

In Canada, "on average, the industrial price of primary metals rose just over 10 percent in 2007, following industrial booms in China and India, which has fortified prices for such commodities as nickel, gold and other primary metals," according to Statistics Canada.

"Chile's worst drought in five decades and power rationing from South Africa to China mean the price of aluminum, gold, copper and platinum will keep climbing as the lights go out in the world's biggest mines," Bloomberg News reported last week. "Runaway growth in emerging markets that's squeezing world oil supplies has led to electricity shortages, cutting output of commodities needed for ever-rising demand."

And with the dollar's volatility, unstable governments, nationalization and more, greater price variation seems almost certain.

"The volatility of commodity markets and the tight margins prevalent in the die casting industry make it more important than ever for die casters to understand the most effective ways to buy metal used in their products," North American Die Casting Association (NADCA) President Daniel Twarog explained last month in an announcement of a new white paper entitled Effective Risk Management Strategies Reduce Commodity Volatility for Die Casters.

With the continuing scarcity of metals and resulting high prices, supply chain managers and purchasers may want to cut risk while strategizing their way around surging prices for metals. The NADCA has prepared quick definitions for three ways:

1) Hedging — Managing the risk of price changes in physical material by offsetting that risk in the futures market. Hedging reduces exposure to price risk by shifting that risk to those with opposite risk profiles or to investors who are willing to accept the risk in exchange for profit opportunity.

2) Fixed-Price Contracting — The smelter accepts risk and will manage that risk through its own hedging strategies in return for top pricing.

3) Formula Pricing — Referring to Platt's, the London Metal Exchange (LME) or other contract reports, fix pricing for metal based on a specific volume.

Because metals sourcing often involves global supply chain interactions, risks exceed those that would be associated with domestic-only purchases. However, there are methods to control risks.

Scott Sykes, principal of Supply Chain Solutions, SAP America, offers these suggestions in another recent white paper, entitled Understanding and Managing Supply Chain Risk:

• Create a complete model of the global supply chain, encompassing all business activities and main partners', suppliers' and customers' key supply chain operations;

• With this model, pinpoint risks you can reduce by strategy or process improvements — for instance, write flexible production supplier contracts or arrange for extra production capacity later;

• Install software that connects business data and processes throughout to gain visibility into planned events, sound cautionary alarms for the unexpected and allow for proactively managing exceptions;

• Promote and nurture a risk management culture through starting to plan for the unexpected and involve main managers in managing risk; and

• Continuously improve operations by yearly "supply chain drills" that bring to light and prove weak links, unforeseen difficulties and potential problematic areas throughout the supply chain.

In addition, if you can arrange for some local eyes and ears in global metals-extraction and -processing areas to report potential bottlenecks or unrest before they occur, you'll have some time to prepare and make considered decisions. More often than not, these serve better than knee-jerk reactions to crises.

Resources

Producer Price Indexes - March 2008
Bureau of Labor Statistics, April 15, 2008

Study: The Year in Review in Manufacturing 2007
Statistics Canada, April 29, 2008

Metals Surge as Rationing Cuts Power at Biggest Mines (Update1)
by Saijel Kishan and Gavin Evans
Bloomberg News, May 5, 2008

Effective Risk Management Strategies Reduce Commodity Volatility for Die Casters
North American Die Casting Association, April 2008

Understanding and Managing Supply Chain Risk
by Scott Sykes
SAP America (via Forbes.com), Jan. 31, 2008 (originally published Jan. 1, 2006)