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Steel volatility was a defining feature of 2022Â for manufacturers, with some struggling to even secure castings and forgings due to high demand as companies emerged from the pandemic.
Fortunately, while experts predict supply for steel and other metal commodities will remain fragile for the rest of the decade, steel prices are rising, and U.S. Steel even restarted one of their blast furnaces in May 2023. For all intents and purposes, the metals industry is recovering and keeping up with manufacturing demand.
However, manufacturers need to keep in mind that future disruptions are inevitable and could threaten the supply chain. It’s critical to prepare for shocks and take steps now to mitigate their impact.
Metals Industry: The Dangers to Manufacturing Around the Corner
The metals industry is the first link in most manufacturing supply chains. Any shock in this sector impacts everything downstream. These are some of the dangers to watch for now and on the horizon:
Unexpected Slow Downs
In today’s climate, the supply chain faces innumerable obstacles, including geopolitical conflict, trade tensions, sanctions, labour shortages, natural disasters, and so much more. Regardless of the disruption, all of them can result in unexpected slowdowns that dramatically limit supply and could even shut down operations. This is especially detrimental to large plants, which take longer to restart production after idling.
Price Fluctuations
The same disruptions that can cause a slowdown can also contribute to fluctuations and volatility in metal commodity prices. Not only does this impact production and operating costs, but long-term price hikes on materials like steel can also bleed into retail prices and impact demand.
Since March, consumers have enjoyed more affordable EVs due to falling lithium prices, but if costs go up, it could curb spending and dramatically cut demand, throwing off manufacturers’ forecasts.
Rising Commodities Competition
As industry standards and consumer preferences continue to evolve, metals that usually have relatively lower demand, such as magnesium, become valuable commodities. We’re already seeing this in the growing popularity of electric vehicles and the industry’s push to build with more lightweight and fuel-efficient materials. As a result, demand for aluminium is surging.
New Regulations
As environmental concerns continue to escalate, governments are clamping down on industrial pollution with a growing volume of regulations. Earlier this year, the U.S. Environmental Protection Agency (EPA) implemented a new set of regulations targeting smog pollution from various industrial sources — including the metals industry.
The rule seeks to limit nitrogen oxide emissions at facilities like power plants, iron and steel mills, chemical manufacturers, and more, which will impact processes involving boilers, reheating furnaces, engines, kilns, and incinerators. Additional reduction targets are set to go into effect next year.
Manufacturing Strategies for Recession Resilience
Taking action to mitigate the risk of potential disruption to the metals industry is critical to navigating the coming years. Here are the three most important strategies to prioritize:
- Reshore and nearshore operations
Since the pandemic upended the global supply chain, manufacturers are realizing the risks associated with the fragile international shipping landscape far outweigh the potential for increased profit. Now, reshoring and nearshoring production and suppliers are the leading strategies for restoring resilience in 2023.
Moving operations closer to home cuts down on transit times, reduces the number of third-party dependencies, and even improves visibility into the entire supply chain. Already, these efforts have given a significant boost to steel demand in the U.S., and the reshoring and nearshoring campaign is just getting started.
- Invest in supply chain technology
The latest generation of technology — such as IoT and AI — can enhance supply chain visibility, traceability, and predictive analytics. In addition to streamlining operations through workflow automation and other efficiency benefits, these tools can provide early warnings and insights into potential supply chain disruptions, giving your operation time to pivot and adapt before it becomes a problem.
Not only does this give manufacturers a competitive advantage, but it can also make life easier for supply chain teams that have been dealing with constant crises for the past few years.
- Hedge and leverage contracts
Though there’s still a great deal of uncertainty in the metals industry, it’s still possible to secure long-term contracts with suppliers and alleviate some of the burden of fluctuating prices. Some manufacturers use hedging to lock in metal prices for future purchases.
Leveraging contracts as a risk management strategy can help mitigate the impact of price fluctuations as long as you have a strong relationship with suppliers and negotiate a fair deal.
Toward a Resilient Metals Industry
The metals industry has experienced an unprecedented number of challenges over the past few years, contributing to the turmoil in manufacturing as well. In spite of these issues, both industries are recovering — but it’s important to use this time to prepare for the next inevitable shock.
Gaining stable footing now will ensure that businesses not only return to pre-pandemic profits and productivity, but also lay the foundation for a resilient future.
In many ways, strategies behind reshoring operations, embracing new technology, and managing supplier relationships go against the direction of the industry over the past few decades. However, focusing purely on growth is no longer sustainable as a business model. Improving the resilience of these industries is a way for manufacturers to get back to their roots and establish the foundations of lasting success.
