Can you create your own alloy steel price index?
Yes, it’s very much possible to create your own alloy steel price index. However, it is both a complex and very time-consuming process. There are three main challenges creating an alloy index, or any price index for that matter, on your own. They are:
- Data gathering
- Bias adjustment
1. Data gathering
The most significant challenge of creating your own alloy steel price index is data gathering. You will need to gather a substantial sample of prices that’s representative of the various price quotations for each alloy to be studied. A robust sampling process is pretty much always necessary to ensure the quality and reliability of the data. And the larger the alloy index, the more data will be required and the more complex the sampling pattern will have to be.
While yes, data gathering is a very complex process, the time it takes to actually find, extract, clean, enrich, and structure the data is more often than not the biggest hurdle to overcome.
Weighting refers to combining the alloy price relatives in such a way that the price movement of the whole alloy group from one time period to another is accurately described. This is achieved by averaging the price relatives for different alloys from different reporters.
This, however, gives rise to another problem where the alloys need to be given different weights. Why? Because not all steel alloys are of equal importance for the company and these weights are in the end arbitrary.
3. Bias adjustment
Last but not least, bias adjustment. This is an issue of continuous quality change and the tendency of many companies to ignore changes in quality when creating and calculating an alloy steel price index. The quality of different goods using steel alloys is continuously changing. The changes are to such a degree that it’s doubtful that anyone living in an industrialized economy is buying products that are identical in physical and technical characteristics to those that their grandparents used to buy.
A bias either upwards (when the quality of the goods is improving) or downwards (when the quality of the goods is deteriorating) will in such cases often occur. For example, technological improvements sometimes decrease the cost of technological goods (like TVs or computers) by making the construction process more efficient, or a cheaper alternative to a material is discovered.
There’s no fully satisfactory way to actually handle the problem of quality changes.
Get the alloy index you need with Prognos
As mentioned, creating your own alloy index is both complicated and time-consuming. It often requires more time, effort, and resources than it’s worth. Instead, try Prognos. We give you access to thousands of the different alloy steel price indexes you need. We gather data from multiple sources all over the world to give you reliable, always up to date data in one convenient place.
We provide you with the objective alloy steel price indexes you need to support your fact-based arguments with your suppliers, with data tailored for your specific needs. Prepare your fact-based negotiations with Prognos to enable better negotiations and fact-based decision making.