This is the moment in the economic cycle that every supplier will come to you with a story about the need to increase prices due to cost increase on their end. In some cases, this is real, in other cases it is just the first stage of conditioning.
Here is a look at the business case for price increases at some AZO pigments, Violet and TiO2.
Pigment Yellow 13
Comparing the prices of Pigment Yellow 13 in the last 3 years compared to the critical feedstocks shows the comparison in the image at the top of the article. The red line is the development of Pigment Yellow 13 prices and the blue line is a composite of the critical feed-stock prices.
As you can see, those lines are relatively (and unusually) very closely matched. This suggests that the model itself is relatively close and the market has been relatively competitive with suppliers being kept honest by the market.
Pigment Yellow 13 cost analysis
If we take another, more detailed look, at the Pigment Yellow 13 prices vs the feed-stock prices, we get the following analysis:
Although the feedstocks to do not explain the full cost of the Pigment Yellow 13 in the market, they explain the significant variable cost part of the price developments. Admittedly, the model is generic and not perfect. But in this case it is a useful indicator of relevant cost trends that can be used as a rule of thumb.
In terms of the prices of the Pigment Yellow 13 that i am showing here, these are web-scraped off the internet from various sites and serve as no more than an indication of market pricing. You can see an article here on how we get the pricing, and an article here on how we build our models.
The ProcureAnalytiq tool is built so that you can benchmark the prices you are quoted against both the web-scraped market price indicator, & the feed-stock pricing. This gives 2 reference benchmarks points on your pigment pricing. In this example i am comparing them against each other to show market developments only.
The outlook for PY13 prices
The feed-stock model is useful not only as a benchmark for the prices you are paying for Pigment Yellow 13, but also as an indicator of future pricing. This is because there is a time-lag between the price of the cost-driver and the prices of the PY13 price. You can see this 2-3 month lag in feed-stock pricing at the end of the timeline, as a dotted line. This dotted line is not a forecast of pricing of feed-stocks – it is the current development of those prices, but pushed into the future to show the likely trend of the Pigment Yellow prices.
Although the feedstock prices have increase in the last few months, the recent trend shown shows hydrochloric acid (after a spike), sodium acetate and caustic soda prices are coming down, whilst we see increases in DCB and AAMX.
So there is not only bad news for the pigment manufacturers.
In addition, other costs such as energy, are also increasing. And there is no doubt that demand is picking up in China as well as some export volumes.
Statistical analysis shows a 3% increase
I am not arguing that there is not pressure on prices – but an increase of more than 3% is not justified on the basis of feed-stock prices as per the statistical analysis below:
The model for Pigment Yellow 13 that we are showing here is not perfect. It is an estimate of the critical feedstocks. However, the pricing we use comes 100% from market sources.
What about the other pigments?
At ProcureAnalytiq we have a similar analysis for the major 20 pigments, including other key Azo’s as well as major Phtalo, Violet, Metallics, and TiO2.
We will not share all of the analysis, but i will include some other sample of the trends along a similar basis as above. If you are interested in doing further analysis than is included here, please contact us.
Pigment Red 57:1
Pigment Red 57:1 shows that the suppliers have not passed on recent price decreases in feed-stocks and should be more than able to absorb price increases in feedstocks.
But if you have a strong negotiating position, a price decrease of 3%-5% looks possible whilst the going is still good.
Pigment Orange 34
Pigment Orange 34 shows a similar pattern to Pigment Red 57:1 in that the suppliers have not passed on recent price decreases in feed-stocks and should be more than able to absorb price increases in feedstocks.
However the window for price decreases look closed already as the feedstocks are increasing faster here.
Pigment Violet 23
Although not an Azo pigment, I thought I would include it as it shows a relatively interesting and important signal.
For Pigment Violet 23 the critical feedstocks are increasingly quickly and price increases will already be discussed. However, if the analysis is perfect (and it rarely is…) then they still owe you a 3% decrease from the past 6 months, so you might be able to delay some of the pain.
Titanium Dioxide (China)
Titanium Dioxide is the hardest product for which to create a good benchmark because the raw material costs which may include ilmenite, sulfuric acid, some iron catalyst, etc are small compared to the energy cost.
On top of that, the ability to switch capacity off and on is limited in Titanium Dioxide production so the swings in price can be quite wild. Only the smart coordinated market signals, managed mostly by Lomon/Billions, prevented an all out price war recently like we have seen in the recent past.
Despite all this, our benchmark indicator, based largely on energy cost as a result is a remarkably good fit. Nevertheless it shows what we already know – based on increase demand, lower capacity and higher energy costs (as well as higher freight costs), the price of Titanium Dioxide for your business will increase significantly.
The only comfort i can give is that the market is still long and prices will stabilize before the end of 2021.
DELIVER DIRECT MATERIAL SAVINGS
ProcureAnalytiq is an online cloud-based software tool to track market developments and leading indicators related the direct material purchases for your business.
ProcureAnalytiq enables user to faster reaction to market changes, better negotiations, automated forecasting of material pricing, better internal and external communication, and ultimately reduces direct Raw Material prices.
Interested to explore more?
The summary above comes out of the ProcureAnalytiq system, based on generic market data and outline cost-driver models. In general, if we work with a client, we develop cost-driver models which are more accurate and relevant and which can be used in negotiations, price tracking, or even price mechanisms.
As market models are confidential, we can not work with competing companies in a single industry.
Here is a short summary of what ProcureAnalytiq is intended to do.
ProcureAnalytiq enables external benchmarking of your raw material pricing
ProcureAnalytiq was built to support tracking critical benchmark and cost-driver price development against your RM pricing.
Track your pricing against external benchmarks
Finding and tracking external benchmarks is a critical requirement in procurement. It requires advanced search for external benchmarks and system to ensure that the tracking is correctly done in terms of Indexing, FX, Unit of Measure,
Track your pricing against critical feed-stock pricing & disruption
Choosing the right data sources for the critical cost drivers and proving the correlation through a look at history. Many procurement managers already keep an eye on 1-2 critical cost drivers. But often they are searching for the right price trends and they may choosing the wrong source of cost-driver data leading them to reach the wrong conclusion.
Build price indexes which are an indicator for your business or SBU’s
ProcureAnalytiq enables you to set up benchmark indicators in minutes to establish overall market indicators for your industry.
Save time & effort in procurement
In addition, the search of data as well as model building in Excel takes times and effort by the procurement staff. This time is better spent on interpreting data and planning negotiations rather than fiddling around in Excel?
Sharing of results
ProcureAnalytiq helps users to share their analysis over time, so that only 1 junior person can maintain the data (based on reliable data sources) and the others can use the analysis for interpretation and communication. It also allows a team to share their input with the supervisor or with research or other business partners.
Interested to explore the topic futher?
If you are curious about the topic of price benchmarking, especially of critical cost-drivers, please feel free to reach out to me through the Explore ProcureAnalytiq page