WOW, well you asked for it:
Ultimately, the distributor is an agent for the distributor. You may be confusing distributor with broker. A distributor holds actual inventory, whereas a broker does not. My guess is that a broker walks a fine line, he actually has three businesses to consider: manufacturer, customer, and himself. If the manufacturer pushes for too large of an increase, or the customer balks at the increase, he may have to adjust his commision to make the sale. While the distributor has similar concerns, he can offset a higher price by offering better service levels through his inventory.
We are a small scale distributor of sheet products, primarily galvanized, that are used in the residential/light commercial construction industry (30ga-12ga). At one time, we bought directly from companies like AK & MT. We would contract our expected needs 12 months out to lock in pricing on that amount of product based on total tonnage expected. We could mix gauges as needed, the total tonnage was what mattered. If we used up our contract, we just executed a new contract based on new pricing. But if we came up a little short at the end of the contract, it went against us on the next contract. If we missed our numbers by a large amount, there may be no new contract.
But things have changed in the industry through the years. My company has been in business for 115 years, and I have been here for the last 37. First the steel mills implemented minimum contract sizes, which pushed the little guys to buy from larger distributors. After several increases to the minimum contract size, they had essentially created a multi-tier distribution system. Then they started spinning off the different levels of production like galvanizing/coating, coil slitting, cut-to-length sheets, among others which basically added more middle men Even though we are not large, we are big enough (~1,000 tons/year) that we deal with the upper level distributors but every $1.00/ton you add to HRC snowballs by the time it gets to us. As of Jan 1,2021 we were selling a sheet of 26ga 36"x96" galvanized for $15.36 to our best customers. That same sheet today is over $28.00, and we had a buffer built into that price which disappeared with the first increase. As I have posted here recently, we are seeing increases of 8% - 12% every truck we order, which currently is weekly. Our lead times have gone from days to weeks. And now they are telling us that they cannot guarantee the pricing on those orders.
In case I forgot to mention it above, Always Just My Opinion
