One of the great mysteries in life is price increases. It’s not that we don’t receive an explanation. It’s that the explanation is the mystery. The companies, who are pumping oil out of the ground, are complaining about the low price they’re receiving: they’re losing “tons of money”. Yet, the price we’re paying at the pump doesn’t look like anyone is “losing their shirt”. Somewhere in the world it freezes and a cup of coffee becomes more expensive. A war breaks out and the supply of chocolate goes down and the price goes up. The welding industry is not immune to these byzantine explanations; especially welding gases. However, we can provide an answer by following the trail that starts with the manufacturer. We’re going to follow the trail of Argon. You may be interested: there’s a good chance price increases are coming that are more than the rate of Inflation.
The Argon Gas Trail
For the purpose of our story, the beginning for Argon starts in an Air Separation plant (ASU). An ASU is erected to capture the atmosphere and separate the gases within it. There are 2 main gases extracted: Nitrogen and Oxygen. The amount of each gas that is extracted is Nitrogen (78%) and Oxygen (28%). Once oxygen has been extracted, it is further distilled to get the Argon; less than 1%.
Why Price Changes Happen
Price increases are a result of costs changing. So, let’s look at the costs of ASU’s.
First you have to build an ASU. It takes many piggy banks to build an ASU.
Companies are willing to borrow and use the money if there’s sign of long term demand and a fair return on their assets; ASU’s don’t have any alternative uses. This is why ASU’s were built beside steel mills; steel mills require tons of oxygen in their steel production. With all this oxygen being produced, it becomes economical to produce Argon.
That last sentence said a lot. We know that the demand for North American steel has been on the decline. So as the lights are going off in these plants, the total production of Oxygen is declining. But, you need Oxygen to produce Argon. And the demand for Argon is increasing. So, what do you do?
One, you can continue to produce the Oxygen to make the Argon. But you won’t be able to spread the cost of Argon with the Oxygen. So, all the costs of running the plant are going to be tied up in the Argon.
Two, there are other ASU’s operating that aren’t tied to the steel industry. That could work but there’ll be transportation costs – they could be coming from a much further distance. Whether this works or not depends on how much excess capacity they have.
How the Problems Get Solved
There is an old saying (I’m not sure how valid it is anymore) that “there is no more $20 oil but there’s lots of $100 oil”. The idle plants are capable of running the plant for just the argon. If the price is acceptable to the end user, then there’ll be more Argon available. The other way this problem gets solved is by putting out a quota. Yes, you can get Argon but this is how much you can have. We saw this with helium.
If your input cost for the welding gases is a small percentage, the price increase could be manageable. Large users of Argon (those with a bulk tank) will definitely notice the difference.
For MIG welding users, switching to CO2 may be a viable option. CO2 has its challenges: more post weld clean up, and possibly having to switch welding wires. TIG welders won’t have the luxury of changing to a different gas.
If we can help, give us a call.