Because most philosophies that frown on reproduction don't survive.

Friday, April 15, 2016

A Price and Demand Problem: .22 Ammo

I'd promised our oldest son (seven years old and eager for the manly arts) that I'd take him to the shooting range this weekend and teach him to shoot my .22 pistol and my dad's old .22 rifle. To make this possible, I stopped at a sporting goods store on the way home from work to pick up some .22 ammunition and found myself in for a surprise. Half the slots on the shelf which should have been full of .22 ammunition were empty, and the stuff that was there was mostly unfamiliar European brands at fairly high prices.

I did pick some up, some British-made rounds priced at $11.99 per box of 50, because I wasn't going to let the boy (or myself) down on the promise of range time this weekend. But it did have me wondering, since this is about 5x the price that I used to pay. Other types of ammunition were not nearly so expensive. There were big endcap displays at the same store of 9mm pistol ammunition for the same price of $11.99 per 50rd box, and boxes of .223 rifle ammunition were only a dollar or two more for similar amounts. This is distinctly odd, because it takes a lot more of the materials which make ammunition expensive (the brass of the casing and the lead and copper of the bullet) to make these larger rounds than it does to make the diminutive .22LR. Indeed, it's precisely because the .22 has traditionally been a very cheap type of ammunition that .22 rimfire guns are so popular as practice weapons. The advice which new shooters are always given, the advice I myself have given people, is: If you want to do a lot of shooting and get good, think about getting a .22 first. You don't want to be paying centerfire prices while you learn to shoot.

The .22LR is much smaller than the 9mm pistol (left) or .223 (5.56 NATO) rifle rounds and thus uses fewer materials.

So if .22 cartridges ought to be cheaper to make, why is it that they're selling for the same price as these larger calibers?

I did a little research once I got home and found an interesting story of unit cost versus capital investment. A piece in American Rifleman explains the quandary of ammunition manufacturers which has apparently resulted in a multi-year shortage of .22 ammunition (which I hadn't noticed because I don't go shooting often and had been working through a large box of .22 ammo which I bought years ago.)

Demand for .22 ammunition has been up in the US since 2008, as well as demand for all other types of ammunition and for guns themselves. Why? When President Obama was elected, there was a panic of sorts among gun enthusiasts that the new administration and the Democratic congress would institute tough new gun control. The result was a massive surge in gun buying and ammunition buying. In addition to people buying guns sooner than later (and going shooting more often during the first few years of owning a new gun) when people saw the price of ammunition skyrocketing due to increased demand, shooters responded by stocking up on ammunition, thus creating a self-feeding cycle in which heavy buying caused shortages, shortages caused high prices, and high prices and shortages caused people to buy more for fear that it would be even more expensive and hard to find later.

With larger centerfire calibers of ammunition, ammunition manufacturers responded to this increased demand by manufacturing more ammunition, and so after some initial bursts high pricing and shortages (and other disruptions when the government buys up large quantities of military and law enforcement calibers -- it was, for instance, really hard to get 7.62x39 ammo during the years the government was buying millions of rounds to supply to the new Iraqi army in 2003-2005.) However, .22 production is apparently maxed out, and it's much harder to add new lines.

For non-gun nuts, a little bit of firearms history is in order. The rimfire cartridge design is actually the older of the cartridge designs, dating back to the mid-1800s. Highly explosive primer, which will explode when struck, is placed inside the rim of a brass cartridge. The cartridge is then filled with gun powder and the bullet seated on top. When the firing pin of the rifle or pistol strides the rim of the cartridge, the impact ignites the primer, which in turn ignites the gun powder, and the expanding gases produced by the burning gun powder provide the pressure to propel the bullet down the barrel of the gun.

In a centerfire cartridge, the primer is instead in a self contained priming cap which is inserted into a hole in the base of the brass cartridge. See below:

Putting together a centerfire cartridge is pretty easy. In fact, many serious shooters hand assemble cartridges themselves from parts using home reloading equipment. However, it turns out the rimfire design is much more difficult and somewhat more dangerous to manufacture. From the American Rifleman post:
The reason why ammunition manufacturers can increase capacity on center-fire cartridges is because that machinery is fairly inexpensive (compared to rimfire machinery) in the big scheme of things. A guy with a couple of Dillons in his garage and some time on his hands can be a center-fire ammo maker if he can get components—especially primers. And, the big guys can make center-fire primers or buy them from other makers more easily than one can prime rimfire brass.

Expanding rimfire production, not so much. A rimfire ammunition plant requires a priming area that is something that has not been newly fabricated in the United States probably for 40 years. Of course, the big American ammunition makers have updated theirs, but they have not added any brand-new facilities at new locations (Winchester did move its rimfire plant from Illinois to Mississippi). It is the priming operation of rimfire ammunition manufacture that takes the large amount of production time.

Frankly, it's not easy and there are numerous safeguards in place because this is a fairly dangerous manufacturing operation trying to squeegee the wet priming compound into the case rims of rimfire cartridges. And the manufacture of priming compound, which is highly explosive, is not for the careless or squeamish. And I am also unsure what trying to obtain financing and insurance for the creation of a new rimfire plant would be like. And if billions of dollars were to be sunk into a new rimfire plant—if a location could be found and approved—would the demand stay high enough to justify it?
This puts the ammunition makers in a classic pricing quandary. Current margins per unit must be pretty high due to the high prices resulting from high demand and limited supply. However, the cost of bringing a new factory online is very high. To do that, they would need to know that prices would remain stable and/or that demand would remain high. Right now there's probably a bit of a trade-off going on: people are probably limiting their use of .22 ammo a bit since it's not even cheaper than other calibers. So a new plant would probably allow sales volumes to increase even more. However, without the shortages, prices would fall, making the profit per each lower (and thus making it take longer for the investment in a new plant to gain a return on investment.) To make all that even more uncertain, the ammunition makers are seeing higher overall demand due to an increase in shooting and buying which may be politically motivated and temporary, in which case they don't want to pay to increase capacity and then see that expensive capacity sitting idle when demand falls.

Of course, another element is the increase in ammunition demand may be that as semi-automatic pistols and particularly rifles become more popular, shooters are going through more rounds per visit to the range. In that case, the heightened demand might be more lasting. But clearly the manufacturers are hesitating to stake major capital investments on that theory. In the mean time, the pricing problem continues.

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