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, 2022 and 2021, we amortized these operating materials in the amount of $1.2 million and $1.3 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 2020. As a result, $1.5 million of fixed overhead costs were not absorbed into inventory and were charged directly to expense and $1.5 million of negative operating efficiency variances were incurred during the three months ended September 30, 2021. There has not been any charge in the current year related to overall activity levels; however, the Company experienced a liquid metal spill at our Bridgeville plant during April 2022. The consolidated statement of operations for the three months ended June 30, 2022 included $3.6 million of net expense related to the liquid metal spill, of which $1.3 million represents fixed overhead costs charged directly to expense due to the impact of the spill on our activity levels. The $3.6 million of expense is net of a $1.5 million insurance recovery received during the period. There were no direct charges of fixed overheads to the consolidated statement of operations for the three months ended March 31, 2022 or September 30, 2022.

	September 30,		December 31,
(in thousands)	2022		2021

Raw materials and starting stock	$	18,888	$	12,263
Semi-finished and finished steel products		129,733		122,396
Operating materials		13,660		10,620

Gross inventory		162,281		145,279
Inventory reserves		(3,414)		(4,595)

Total inventory, net	$	158,867	$	140,684