Our raw material and starting stock inventory is primarily comprised of ferrous and non-ferrous scrap metal and alloys such as nickel, chrome, molybdenum, cobalt, vanadium and copper. Our semi-finished and finished steel products are work-in-process in various stages of production or are finished products waiting to be shipped to our customers.

Operating materials are primarily comprised of forge dies and production molds and rolls that are consumed over their useful lives. During the nine months ended September 30, 2021 and 2020, we amortized these operating materials in the amount of $1.3 million and $1.4 million, respectively. This expense is recorded as a component of cost of products sold on the consolidated statements of operations and included as a part of our total depreciation and amortization on the consolidated statements of cash flows.

Inventory is stated at the lower of cost or net realizable value with cost principally determined on a weighted average cost method. Such costs include the acquisition cost for raw materials and supplies, direct labor and applied manufacturing overhead. We assess market based upon actual and estimated transactions at or around the balance sheet date. Typically, we reserve for slow-moving inventory and inventory that is being evaluated under our quality control process. The reserves are based upon management’s expected method of disposition.

Due to low activity levels at our production facilities caused by the COVID-19 pandemic, management revised its accounting estimates for the absorption of costs into inventory during the third quarter of 2020. During the three months ended September 30, 2021, $1.5 million of fixed overhead costs were not absorbed into inventory and $1.5 million of negative operating efficiency variances were incurred. The total impact of $3.0 million was charged directly to expense in the quarter.

	September 30,		December 31,
(in thousands)	2021		2020

Raw materials and starting stock	$	14,771	$	9,286
Semi-finished and finished steel products		114,434		94,928
Operating materials		11,185		11,502

Gross inventory		140,390		115,716
Inventory reserves		(4,786)		(4,336)

Total inventory, net	$	135,604	$	111,380