What is Purchasing Power and Why Does It Matter?

Boyd Metals

The term "purchasing power" is used in economics to describe the ability of an individual or business to buy goods or enlist services in the marketplace with a specific amount of currency. 

The idea of purchasing power is extremely important in the metal industry because it impacts everyone purchasing raw materials. Your purchasing power can fluctuate over time and is impacted by inflation, deflation, and significant events and changes in your industry.

In short, while everything else within a transaction remains equal, inflation actually decreases the total amount of metal that you are able to buy.

Large global market fluctuations can have a great affect on the purchasing power for smaller, local fabricators. For example, consumers will lose purchasing power when prices increase due to a financial crisis and in turn, gain purchasing power when prices decrease or level out to pre-crisis values.

When considering the levels of steel purchasing power in the US, we often look at current figures in China. For those who don’t know, China ranks #1 in the world for crude steel production, accounting for over 50% of the production of steel worldwide! And though China doesn’t export a lot of steel to the US, it is a contributor in exports to other countries. This establishes a base line against which the US can be compared for perspective. It also presents a matter of competitive edge, where long-term imbalances can lead to higher levels of importing from overseas.

Since February of this year, through much of March, the prices of steel in China have been in a decline. This means they have been gaining purchasing power. In fact, China’s steel-rebar and iron ore futures fell by 3.9% and 4.7% just this past March. Contrarily, the US prices have been increasing since the end of last year. Based on the trends of last year’s figures, it is estimated that this gap will close soon, though we don’t definitively know whether it will be China or the US whose prices are altered in closing the gap. Overall, recent numbers suggest that the global steel market is projected to increase to $865.5 billion by the year 2020.

Understanding the factors that are influencing your purchasing power in the metal industry is more important than ever before.

With big companies like Toyota, who recently announced a $1.33 billion investment in a Kentucky plant, looking to make solid deals with those working in the metal industry, purchasing power is a practical concept with which everyone from vendors to project managers, and project estimators should be familiar.

For project managers, purchasing raw materials and buying metal with the help of the experienced team at Boyd Metals means that you don’t have to worry about compromising quality levels in order to meet your bottom line. While you may not have control over the global market, you can control who you choose to do business with.

By delivering the best possible experience to each of our clients, the team at Boyd Metals is your one-stop source for all things metal.

If you are concerned with global market fluctuations affecting your ability to buy metal that is high quality and affordable, feel free to contact the experienced and knowledgeable team at Boyd Metals online today. We are always happy to discuss your options and ready to help you complete your next project.


Tags: Insider Tips, Industry Knowledge