Seeking Alpha
Aluminum Is No Lightweight
Edited by : AL CIRCLE
2 min read
Most metals already have claimed dominance in their respective areas of popular usage. Aluminum's light weight has made it the top material for airplane bodies.However, continuous innovation by metal producers has widened the range of potential uses for many metal products. Further, a divergence in metal pricing in recent years has made metal substitution an important consideration for manufacturers.
The cost of the metal used is typically less than 10% of the finished product's total cost, so original-equipment manufacturers and other users of metal tend to be less sensitive to metal pricing in the short term, particularly with respect to high-end appliances, automobiles, and electronics. However, long-term price levels and price volatility make metal costs an important determinant of profitability, particularly as a wider array of materials has increased the threat that competitors might adopt cheaper methods of production. The more mission-critical the application, the greater the challenge posed by substitution to the manufacturer. Since price is generally the main driver to substitute and long-term price trends are difficult to forecast, less vital applications will see the most substitution. Other factors such as regulations, energy efficiency, risk of theft, and customer influence have been cited as drivers of metal substitution.But ultimately, we believe price levels and price volatility have the largest impact.
The cost of the metal used is typically less than 10% of the finished product's total cost, so original-equipment manufacturers and other users of metal tend to be less sensitive to metal pricing in the short term, particularly with respect to high-end appliances, automobiles, and electronics. However, long-term price levels and price volatility make metal costs an important determinant of profitability, particularly as a wider array of materials has increased the threat that competitors might adopt cheaper methods of production. The more mission-critical the application, the greater the challenge posed by substitution to the manufacturer. Since price is generally the main driver to substitute and long-term price trends are difficult to forecast, less vital applications will see the most substitution. Other factors such as regulations, energy efficiency, risk of theft, and customer influence have been cited as drivers of metal substitution.But ultimately, we believe price levels and price volatility have the largest impact.
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