As members of the materials community, heat treaters might find it interesting to know that there is a relationship studied by economists between the price of metals and their consumption. The references shown at the end of this short blog provide two fascinating papers on the subject, only the briefest of highlights that are summarized here and in part 2.

The use of metals is far and away the most important material choice for engineered products. In all likelihood, metals will retain this position for many years to come. The choice of which metallic material to use in the manufacture of a product is governed by a variety of factors, not the least of which is fitness for purpose as determined (in many cases) by mechanical, physical, chemical and metallurgical properties of the material. Cost of the material, however, is often a significant if not overriding factor.

Nutting’s Law

The relationship (Equation 1) between the average price, P, and the annual consumption, C, of many metals can be expressed as follows:

(1)           log P = log α + ß log C

where:

P = price, £/metric tons

C = annual work consumption in metric tons

α = price per metric ton corresponding to consumption of 1 metric ton per annum

ß = a constant which is related to price flexibility and whose approximate value is -2/3.

It is noteworthy that ahas been found to depend upon the level of inflation expressed through the Consumer Price Index (CPI) and the level of industrial (manufacturing) activity expressed through the World Index of Industrial Production (INDPRO).

Equation 1 can be interpreted as a world demand equation in which the world supply (i.e. production) is determined by mining conditions and other exogenous factors and by economic considerations of earlier periods. Figures 1 and 2 express this equation graphically.

References

1. Georgentalis, S. and J. Nutting and G. Philips, Relationship Between Price and Consumption of Metals, Material Science and Technology, Volume 6, No. 2, 1990.
2. Chen, Mei-Hsiu and Kenneth W. Clements, Patterns in World Metals Prices, University of Western Australia, 2008.