With a drop of over 35%, copper is having a profound impact on distributors, especially with end of year coming up, and the future doesn’t look too good either.
In less than a month copper has fallen from $3.32 on September 2 to $1.85 as of yesterday, October 22, and based upon some marketplace input and conversations with purchasing individuals in other industries, it appears that the decline will continue. This is because of reduced worldwide demand, probably some financial manipulation (hedge funds), the slower time of the year and upcoming Chinese New Year.
This week we’ve heard from over 20 distributors who are asking “what do you know?” and “What would you recommend?” We’ve shared our observations and recommendations with them. From a broad perspective this means:
- Every distributor’s inventory is overvalued.
- Your purchasing system is buying more material than you need (min/max is based upon historical, not marketplace conditions).
- Distributors are making less GP dollars on their wire sales than previously, while doing the same amount of work, even if they are selling the same number of feet. The same GM% on a lower dollar amount is lower GP dollars, lower sales commissions, and lower profit for the distributor. This will affect lower distributor net profitability (industry-wide) and may lead to expanded expense management practices.
- Distributors who use LIFO accounting practices may face a significant tax bill at the end of the year. LIFO is great in an appreciating market, but …
Oh, and while this is impacting copper now, it will migrate to other commodities … with oil falling, what will that do to plastics? Steel?
So what are you doing to manage your exposure? What help are you getting from your manufacturers? Manufacturers justified price increases based upon commodity price increases, are they reducing them? Can someone spell SPA?
6 Comments
Can steel products be much behind this drop off in demand?
Keeping tight inventories and trying to stay in business.
Southwire must know something that the rest of the world doesn’t. Some of their dealers in my area are selling product 12-16% BELOW my into stock cost.
BJ-Ala.
This is not our first rodeo….it will be interesting to see how some of these price increases from last year are handled.
BG in N.E.
Deflation is this what it is called? Banks….making side bets that loans will fail.
“This is worse than a divorce, I’ve lost half my net worth & I still have a wife.”
“So far I have not found a single supplier who is willing to take their over priced stuff back”.
A distributor with a sense of humor….I think.
Great post, guys. I posted some additional thoughts (and cite your post) on my blog here:
Commodity Deflation is Closing the Growth Gap
Regards,
Adam
While most wire companies are denying any special prices to some specific distributors, it is of note that a few distributors need to contact their wire reps….just in case they have the wrong price out on the street.
15% below my COST into stock quotes……do nothing but tear up the market.
This is like a divorce,only in that I have lost over half stock values ans till have a wife….I know it’s a joke, but it very true for our times.
The SPA’s are killing our profits and they want brand loyality?
NETS work.
Stayin afloat in NC
Leave a Reply
Trending Now
Pulse of Switchgear
