Metal Shortage puts Squeeze on Miniatures Manufacturers

(from GAMA in Motion, Volume I, Number 1)

Tom Dye of Game Figures, Inc. (GFI) got a rude surprise on St. Patrick’s Day. Rather than any traditional Irish greetings or festivities associated with the holiday, Dye found out his business was about to experience a severe increase in its costs of doing business. He called his metal supplier to purchase raw materials for the historical miniatures GFI manufactures and found out the price had risen dramatically.

At first, he couldn’t believe what he had been told. He called a few colleagues at Musket Miniatures, Perrin Miniatures, and Old Glory. None had heard of the situation at the time of his calls, but within 10 days all of them had called back to confirm what Dye had already learned: a metal shortage was causing prices to skyrocket.

Worldwide, steel, scrap metal, tin, and other ores are in short supply, causing their prices to rise markedly. According to Reuters, tin prices in May are set to challenge 14-and-a-half-year highs. More alarmingly, those record prices were set in April of this year.

Many experts point to the booming Chinese economy as a principle factor in the shortage. According to Amy Saunders, a business writer for The Independent, “[ China’s] economy is growing 10% a year as it prepares for the 2008 Olympics.” According to The New York Times, the PRC’s consumption of steel alone equals that of Canada and Mexico put together. Moreover, Reuters reported that “ China raised output of tin by 12.3 percent to 23,200 [tons] in the first quarter of [2004], but its exports fell 39.4 percent to 4,809 [tons].”

Tin is a major component in miniature figures. According to Dye, it composes 94 percent of the raw materials for miniatures. Thus, the shortage is putting minis makers in a real bind.

Compounding the situation, tin is also a principle ingredient in solder. That makes it a critical resource for the electronics industry. Because the global electronic market dwarfs that of hobby games miniatures many times, metal suppliers are understandably more interested in selling there than to small companies like Dye’s GFI. And since there is a shortage of supply, the sellers can charge a higher price, which the electronics industry is in a position to bear. Many minis makers are not, and that means they’re going to have to re-evaluate how they do business.

“In the past, GFI maintained bins with figures and packaged on demand,” Dye said. “This allowed us to quickly pack and ship orders.”

That’s not going to be cost-efficient anymore, though, since metal can’t be “wasted” on figures the company doesn’t know it can sell.

“We will now have to do more ‘cast-to-demand,’” Dye said, “which results in longer order turnaround times. For many consumers, this will be met with frustration as they must wait longer to get their products from us.”

And, of course, there’s the issue of prices. To be able to remain profitable, minis manufacturers must raise prices to the consumer, which in turn will likely lead to a slowdown in sales.

Dye noted also that it has been difficult to determine how much of a price increase is appropriate. With the price of metal rising so rapidly, it’s hard to predict what a fair price is.

“Since we had to raise prices, we had to ‘pick’ a price for metal to plug into our pricing equation,” Dye explained. “If [it was] too low, another price change would be required soon. If [it was] too high, sales would suffer.”

There doesn’t seem to be an end in sight. Metal-industry analyst, CRU, reported that worldwide consumption of tin exceeded production by 15,000 tons in 2003. The company expects that gap to widen to 20,000 tons in 2004. Dye perhaps summarized best the frustration manufacturers and the retailers who stock their products feel:

“The real problem with this situation is that the escalation is not something any company can control.”