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Medical Market: Aging Population a Boom for Medical Metal Suppliers

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For most metals industry participants, the exodus of the baby boomer generation from the working age population is a source of concern, signifying the loss of talent from the warehouse floor all the way up to the executive suite.

But for distributors to the medical supply chain, that large cohort of individuals entering retirement age, or already there, serves as a significant opportunity for business growth.

“The population in this country and around the world is aging. Consequently, and unfortunately, that requires more replacements: hips and knees and shoulder. All of these things you have a tendency to need help with. Those things will continue to drive the market,” says Mike Vincent Sr., president of M. Vincent and Associates Specialty Metals, Bloomington, Minn.

That sentiment was echoed by Steve Parks, a sales associate in charge of the medical market for T&D Materials, Broomall, Pa. “If you look at it from a macroeconomic perspective and the aging of the populace of the United States, everyone selling into healthcare and medical devices seems to be doing well.”

Phillip Bowman, president of Specialty Metals Supply, Jackson, Miss., says his conversations with customers have left him quite optimistic about the market in 2018. “The expectations are really good, even with the price increases. Our customers have seen it, and even though they aren’t looking forward to it, they are expecting it.”

Prices for most materials in the space held steady throughout the back half of 2017. Additionally, given the complexity and engineering requirements in most devices, the market is typically less price sensitive than it is for other specialty metals end users. On the other hand, the market is far more volatile in other ways. The never-ending development of new technologies and advancements in the medical field make stocking material a challenge.

“We have to be flexible, because they all have their own parameters for the material requirements they need to make their finished product. We’re always aware that every time the phone rings, it’s somebody who has their own specific set of requirements and we need to find a way to produce for them, whether it’s heat treated or precision ground or painted blue,” says Vincent.

Suppliers are regularly charged with changing sizes and materials, depending on the given needs of a customer. An expensive lawsuit can result in a reliable customer leaving the medical equipment market entirely. Service centers are faced with the mutually exclusive requirements to have needed material on hand, while hoping that today’s go-to stock doesn’t become obsolete tomorrow.

“We manage it by communicating with our customers weekly, or daily,” Bowman says. “There are always new partners; your customers are always making changes.” And your competitors aren’t just other domestic participants. The market is truly international. “There is a huge amount of competition from overseas manufacturers,” Parks says.

But distributors can and do sell material into foreign markets. “We don’t find that shipping is a big impediment to doing business,” Parks says.

Whether selling domestically or into foreign markets, the story is the same. Since the material is being used in life-saving applications, customers have more exacting requirements than traditional end users. That manifests in stringent qualifications like those placed on suppliers to the defense markets. “It requires a lot of paperwork and traceability,” Vincent says.

“You have to spend a lot of time on the buy side with the different mills, both foreign and domestic. You’ve really got to be careful,” Bowman adds. The device manufacturing industry got a bit of good news in late January in the passage of the continuing resolution by Congress. Included in the legislation was a two-year suspension of the medical device tax. “We remain committed to working with the broad, bipartisan coalition that supports a full and permanent repeal of the device tax this year so that this dynamic American ecosystem can deliver the next generation of cures and life-saving therapies, and provide the high-tech manufacturing jobs that develop them,” said Mark Leahey, president and CEO of the Medical Device Manufacturers Association, in response to the tax suspension.

While the medical device market is dominated by specialty metals products, the facilities themselves offer more opportunity for steel, aluminum and red metal suppliers. The outlook there remains positive, with the American Institute of Architects’ Consensus Construction Forecast calling for the second straight year of growth just below 5 percent.

Ken Simonson, chief economist for the Associated General Contractors of America, says the market got two bits of good news over the course of 2017. “The hospital construction market dodged two bullets in 2017: The Affordable Care Act and private activity bonds both appear to be safe, at least for now. In addition, the strong rise in the stock market has helped endowments for universities and nonprofit medical institutions and boosted the chances of capital campaigns to attract generous donations.”

Campaigns for large hospital projects run counter to another major development in heathcare spending, Simonson says. “The trend toward decentralizing medical care is likely to continue. That implies faster growth in the next few years on standalone urgent-care clinics, surgical centers, rehab facilities and hospices, and on telemedicine, than on hospital construction.”