Credit goes to "Miami" on the ZS forum. I thought this may be a good bit of info for THR.
Original Thread:
http://zombiehunters.org/forum/viewtopic.php?t=18302
______________________________________________________________
-- John
Original Thread:
http://zombiehunters.org/forum/viewtopic.php?t=18302
What are the main causes of the rapid price increases, and shortages in the available supply, of ammunition over the past year?
We've all heard the standard answer that "there is a war going on". This is
an incomplete answer. .223 (5.56x45mm), .308 (7.62x51mm), 9x19mm, SOME .45
ACP, 7.62x39mm, 5.45x39mm and 7.62x54R are impacted as they are military
calibers and subject to demand from military contracts. Although not
mainstream, .50 BMG shooters are in the mix and have been feeling the
shortage as well. There is a secondary effect to other calibers and bullet
weights in the industry because of the limited number of production lines
available. Commercial, automated pistol ammunition manufacturing machines
start at about $20,000 each. Rifle caliber machines are about $40,000 each.
The major manufacturers may have a dozen machines or so in each plant, but
not enough to dedicate each line to one caliber and bullet weight. Retooling
between runs may take a few manhours to do and production stops during re-
tooling, so it becomes a painful management decision to change the line.
This is most apparent in small manufacturers like Dakota (Corbon) and Black
Hills Ammo where their operations are just a handful of machines and it may
be several weeks to even a few months between runs on a particular caliber
and bullet weight. With a high customer demand (beligerents in combat), a
lot of orders and production gets sucked up in military contracts. This
leaves the American consumer (as a whole, a high-demand consumer) with "the
scraps" in a lot of cases. A good example of this was the 7.62x39mm shortage
a while back--Syria literally sucked up supply for a few months while it was
stocking up. But this is really just a part of the whole problem.
Second in the contract-filling arena are "big box" stores like Wal-Mart. In
case you didn't know it, Winchester has dedicated loading-dock space for Wal-
Mart trucks. They have EIS (Enterprise Information Systems) architecture in
place to know which stores are running low on stock and fill those trucks and
turn them around accordingly. The manufacturers are contracted to fill
orders for the box stores and due to penalty clauses in the contracts, have
to fill those contracts according to the specs, even down to what order ammo
is loading in the trucks, how it's shrink-wrapped onto a pallet and what ammo
goes where on a pallet.
After the 'marts, wholesale distributors get ammo (sometimes at horrible
prices) and in turn allocate to sales reps who then push the ammo out to
their customers (retail ammo vendors).
Direct supply and demand of ammunition has had a lot to do with ammo prices,
but it's just a part. For those who haven't followed metal prices in recent
years, it's been going up rapidly (copper maxed out at almost four times its
price in 2004 with other metals behaving similarly). Metals are commodities
and futures are traded in exchanges throughout the world. Those futures set
contract prices for metals. Commodities tend to follow eachother. When oil
is up, gold and silver eventually works its way up and the other metals work
their way up. Higher oil prices mean higher production and transportation
costs for everything else. As long as it's economical to produce a metal,
mines are profitable. On average, mining gold costs $280-300 per ounce to
produce. As long as the price is above that, mines will operate. The same
holds true for any other mine operation. Copper has been very profitable so
mines have produced now to surplus. More on the copper surplus later.
Other industries compete for our same metals. China and India are both
industrializing very rapidly. The demand for cheap consumer electronics has
been fueling this and will continue to fuel this. Brass, lead and copper are
used in these industries and are in direct competition with the ammunition
industry.
For those that haven't followed the industry closesly, South Africa
effectively went off the market about a year ago. IANSA and the UN blew the
whistle on South Africa for selling off surplus to ARMSCORP (a German-based
company, not the Filipino company the rest of us know) who was supposed to
scrap the ammo and sell of the components. Instead it was sold on the US
surplus market as well as the Central and South American markets. Fearing
the wrath of the UN and the image of being the world's source of
proliferation of arms and munitions, the South African Congress closed the
doors on its surplus. Without a huge source of billions of rounds of ammo,
there is less competition to other international vendors to keep their prices
down.
For those that watch ammo, the major manufacturers have averaged 5-6
increases per year for the last two years. I have personally seen good
sellers (Winchester .45 Colt Cowboy comes to mind right away in one
particular incident) that haven't been produced for a couple months,
magically appear after a price hike at the higher price, which meant the
production happened before the price hike and presumably were produced with
components at the previous price. I am sure they are profit-taking where
they think they can get away with it. Remington Ammo reported it's first
profit in years this past quarter.
Manufactuers also watch what is happening with other manufacturers and try to
set production on what may be hitting the streets soon. Even since El Dorado
(PMC) went out of business a couple years ago, PMC ammo has only trickled
into the US. The Koreans have surplus and they are hungry for business. The
first shipments are arriving in time for the summer slowdown. Not knowing
exactly what is on that shipment, a lot of manufacturers are leary of
investing too much into production that the PMC shipment may force down
prices on.
Another often forgotten facet is the value of the dollar. A lot of ammo is
imported. Anything Winchester that has an "A" in the product code means that
it is imported. Q3131A was the .223 55-gr FMJBT load made in Israel. I
haven't seen it in over a year. For quite a while, S&B was making .45 ACP
230-gr for the Winchester Q4170A loading. A lot of Winchester shotshells are
now made in Australia (XU168A is one I'm looking at right now). A weak
dollar drives the prices of imported ammo up. Hotshot (Igman) is from
Bosnia. S&B is from Czech Republic. Prvi Partizan (Wolf Gold Line, FNM,
Hornady metric calibers) is from Serbia. Pricing from these manufacturers
are dictated by the Euro, which the Dollar has been doing horribly against.
Should we expect that these prices will eventually stabilize or return to a lower level, or should we assume that they will probably never be lower than they are, and therefore stock up on ammunition now?
If I were a betting man, Winchester's new price hike in June (with other
manufacturers to follow by July), should be the last of it. Copper prices
are already down almost 25%. I expect prices to start SLOWLY dropping by the
end of the summer. I emphasize slowly because the sharks have to finish
their feeding frenzy (the manufacturers smelled blood in the waters and got a
taste for profits, so they will be slow to give it up and distributors and
retailers eventually have to sell off their high-priced inventories and
replenish with lower priced stocks). I also think the ammo market is still
speculating on PMC and will be slow to react to after pricing is established
and orders start filling out.
As far as stocking up on ammo--you can't have too much. If you're waiting
for really low prices, you may be waiting for a long time. I think the days
of cases of 1000 rounds of 7.62x39mm for $69 retail went away with Clinton's
Executive Order banning Chinese imports.
Also, depending on the latest round of legislation to follow the Virginia
Tech tragedy, the market may become interesting. Bans have always fueled
sales and prices. How do you proliferate private ownership of "assault
weapons"?--you ban them so everyone becomes interested in them, wants them,
pays the price for them and then raise their children to want them. People
who shoot military-style weapons buy lots of ammo (I average half a case with
every AR or AK sold).
______________________________________________________________
-- John