Ford’s $1 billion raw-material cost hit (see below) should force a harder conversation in manufacturing: How much of commodity inflation is truly “unavoidable” — and how much is just unmanaged exposure? Because this was not simply a story of “aluminum got expensive.” It was a story of buyers still treating aluminum like a single number, when in reality North American exposure is at least two markets: 1️⃣ LME aluminum 2️⃣ U.S. Midwest premium And over the last year, those two moved very differently. According to MetalMiner data: 👆 LME aluminum rose about 47% 👆 U.S. Midwest premium rose about 189% That second number is the one that should make procurement teams uncomfortable. Too many organizations still monitor the exchange and assume they understand their aluminum risk. They don’t. Not if the premium side is what’s actually blowing out the budget. That is why the real procurement failure in markets like this is usually not “we didn’t predict the spike.” It is: 1️⃣ we didn’t separate the exposure correctly 2️⃣ we didn’t cover the right piece first 3️⃣ we waited too long and then we called the result “market conditions” 🛑 The market should stop normalizing that. Using MetalMiner’s historical aluminum buying-strategy track record as a benchmark for disciplined timing, buyers could have seen roughly: 2.7% cumulative savings versus market on LME aluminum 5.0% cumulative savings versus market on the U.S. Midwest premium Important caveat: this is historical track record, not a future guarantee. What does this mean? On $1 billion of exposed spend: 2.7% = $27 million 5.0% = $50 million That is not noise. That is not “rounding.” That is the difference between explaining away inflation and actually managing it. And frankly, the bigger opportunity may not even be the percentage savings alone. It is avoiding the procurement pattern that destroys budgets: - leaving premium exposure open - getting forced into the market - locking volume after the move and discovering too late that “hedged aluminum” was never really hedged at all This is the uncomfortable truth for the market: Most companies do not have a commodity problem. They have a buying-process problem. Better market intelligence does not eliminate inflation. It does something more important: it shows which part of the cost stack is dangerous it signals when risk is changing it helps buyers layer decisions instead of reacting and it turns “surprise” into strategy If you are a manufacturer buying aluminum, the lesson is simple: manage the exchange manage the premium do not confuse one with the other and stop calling avoidable exposure “bad luck” Because in a market like this, “the market moved against us” is sometimes just another way of saying: we were looking at the wrong benchmark. #aluminum #procurement #strategicsourcing #hedgealuminum https://lnkd.in/g-8rBgig
Lisa Reisman
2mo
Aluminum buyers cannot only look at LME and the Midwest premium and assume the risk map is complete. In many automotive and industrial applications, aluminum is an alloy system. Silicon metal is a key input in many aluminum-silicon alloys used for casting, lightweighting, and performance parts. So the question is not only, “Did we hedge aluminum correctly?” It is also, “Do we understand the upstream materials required to make the aluminum products we depend on?” A resilient North American aluminum strategy should include resilient North American silicon metal supply.
Companies should have a “sharp pencil” by now. Covid, tariffs, war. All managable if you have the right people in the right positions to navigate through the bumps and come out better and stronger on the other end.
Tim Dougherty
2mo
Ugh I've been waiting for this since the smelter in the UAE was hit due to the conflict in Iran.
