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 Question regardin steel-pipe

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TSSImPle PLan
post Feb 10 2008, 01:12 AM, updated 18y ago

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Sorry to create a topic to ask such simple question.
Do the increase of prices of steel affects pipe make company? Benefit them or opposite regarding their cost of sales?

Next abt tin maker.
Does the price aluminium(izzit) moves in inverse relationships wif tin can company cost of sales?

Same goes to price of rubber and glove maker company.

Thx for any constructive info given.
Playbook
post Feb 11 2008, 06:12 AM

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QUOTE(SImPle PLan @ Feb 10 2008, 01:12 AM)
Sorry to create a topic to ask such simple question.
Do the increase of prices of steel affects pipe make company? Benefit them or opposite regarding their cost of sales?

Next abt tin maker.
Does the price aluminium(izzit) moves in inverse relationships wif tin can company cost of sales?

Same goes to price of rubber and glove maker company.

Thx for any constructive info given.
The answer depends on their ability to pass on the costs to their customers.

If the price of a raw material rises, and they don't have the ability to pass it on to their customers, it affects them negatively.

If the price of a raw material rises, and they can pass it on to their customers, there's no effect on the bottomline. You may see sales rise, but that's an "artificial" effect due to the rise in the price of the raw material - the cost of the raw material rises too. Profit margins may seem to drop since profit remains the same, but sales rise. However, the relevant measure may then be profit per unit of the finished product - this will remain the same.

Note - if the price of a raw material rises, there may actually be a positive effect. This is what happens in real life. Once the rise increases, companies with ability to pass on the costs, quickly raise prices - but if the raw material price rise is temporary, they don't drop the finished product price as quickly once the raw material price drops again. I have noticed this first-hand in some privately-held companies in an oligopolistic industry.

p.s. if you are looking to make investments, it's even better for you to invest directly in the raw material company. You basically look for where you see the raw material prices will rise.
TSSImPle PLan
post Feb 11 2008, 11:34 AM

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QUOTE(Playbook @ Feb 11 2008, 06:12 AM)
The answer depends on their ability to pass on the costs to their customers.

If the price of a raw material rises, and they don't have the ability to pass it on to their customers, it affects them negatively.

If the price of a raw material rises, and they can pass it on to their customers, there's no effect on the bottomline. You may see sales rise, but that's an "artificial" effect due to the rise in the price of the raw material - the cost of the raw material rises too.  Profit margins may seem to drop since profit remains the same, but sales rise.  However, the relevant measure may then be profit per unit of the finished product - this will remain the same.

Note - if the price of a raw material rises, there may actually be a positive effect. This is what happens in real life. Once the rise increases, companies with ability to pass on the costs, quickly raise prices - but if the raw material price rise is temporary, they don't drop the finished product price as quickly once the raw material price drops again.  I have noticed this first-hand in some privately-held companies in an oligopolistic industry.

p.s. if you are looking to make investments, it's even better for you to invest directly in the raw material company. You basically look for where you see the raw material prices will rise.
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Thx for giving me valuable information.

 

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