How Do Commodity Prices Impact the Medical Device Industry?
Medical device manufacturers source various medical components and parts from suppliers in order to assemble or develop medical devices.
Dec. 7 2015, Updated 1:04 a.m. ET
Medical device raw materials
Medical device manufacturers source various medical components and parts from suppliers in order to assemble or develop medical devices. Chemicals, fibers, glass, plastic, and metals such as steel and titanium are some of the raw materials used in medical device manufacturing.
Stakeholders across the value chain from raw material suppliers to original equipment manufacturers (or OEM) and end users are impacted by the fluctuations in raw material prices.
Plastics
Properties such as light weight, low cost, and flexible and superior biocompatibility make plastic one of the most widely used raw materials for manufacturing medical devices. Approximately 5% of the oil produced globally is used for the production of plastic. However, only 4% of the plastic produced is used for the manufacture of medical products.
When crude oil is refined and processed, it results in the production of petrochemicals, which are the building blocks of plastics and various other chemicals. Plastics are the major raw materials for various medical supplies and component materials used to manufacture medical devices. The cost structure of plastic is directly impacted by changes in oil prices, in turn affecting costs of medical devices. Apart from manufacturing costs, logistics and selling costs are also impacted by changes in oil prices due to the impact on transportation fuel costs.
Steel
Steel is one of the other raw materials widely used to manufacture various medical components such as medical stampings, wire products, non-invasive surgical device components, and medical blades.
Companies hedge against the raw material price fluctuations impacting manufacturing costs by adopting various measures such as entering into long-term price contracts or adopting cost containment measures such as improving productivity.
Top players in the medical device industry are Medtronic (MDT), Stryker (SYK), Becton Dickinson (BDX), and Abbott Laboratories (ABT). One of the ETFs with exposure to the medical device industry in the US is the iShares U.S. Medical Devices ETF (IHI).
