What will the number of IPSAs look like for 2015? Source: Deloitte
Recently, Deloitte put out a story in their Heads Up newsletter on what companies should be thinking about for their next Section 1502 (“Conflict Minerals Rule”) compliance reports, including how to best prepare for independent private sector audits (IPSA). Below are some nuggets for US manufacturing organizations to keep in mind. For an excellent rundown of the latest legal challenge to SEC’s Conflict Minerals Rule from the US Court of Appeals, read my colleague Jeff’s recent article.
Currently, there is uncertainty as to whether SEC will require IPSAs for all companies filing conflict minerals reports (CMR) for calendar-year 2015. More on that below, but first, a quick refresher: Read more
As the base metal and ferrous metal complexes we cover continue to take a bruising, the peripheral hits have struck our precious metals price index as well, with PGMs platinum and palladium leading the charge downward.
In fact, the monthly Global Precious Metals MMI® registered a value of 74 in August, a decrease of 7.5% from 80 in July – thereby hitting a new all-time low. Every single metal price point for gold, silver, platinum and palladium dropped across all geographies we track, including the US, China, India and Japan.
This index has never seen the 70s before, and it’s not having a really nice day as they used to say in the ’70s (at least not for investors).
According to my colleague Raul de Frutos, writing at the end of July, palladium prices fell as much as 14% during that month:
Palladium price since 2013. Graph: MetalMiner.
Ironically, palladium was the best performer among precious metals until just about a year ago when it started to fall, Raul wrote. So far, year-to-date, palladium has tanked 32% with the most precipitous drop showing over the past two months. So what’s been driving the price meltdown?
Just a couple days ago, BMW and Toyota Motor Corp. publicly voiced their concerns over China’s car market, saying that the days of double-digit growth are likely over, as reported by Bloomberg. Both companies are concerned about their profits getting dinged, and are therefore cutting back production based on low demand numbers – BMW, for example, said earlier this week that it had cut production in China by 16,000 cars so far this year.
South African mines, producers of 70% of the world’s supply, have been reporting production levels for platinum above those during the 5-month strike in 2014, as Raul has pointed out in his previous coverage. Combined with the lollygagging of the Chinese auto sector, looks as though platinum prices may not see a huge rebound for some time as well.
Remember, the strength of the US dollar plays a big role in the movement of this index. The dollar-to-euro exchange rate has been listed as the No. 1 driver of all the base metals in our latest, newly revamped monthly buying outlook, and it’s safe to say that’s no exception for gold and silver movement – when the dollar is strong, investors tend to leave gold behind as a safe haven a little more often.
The Global Precious Metals MMI® collects and weights 14 global precious metal price points to provide a unique view into precious metal price trends over a 30-day period. For more information on the Global Precious Metals MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.
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The EPA is getting closer to unveiling the final versions of its Clean Power Plan, which targets existing power-generating sources in the United States, and the US manufacturing community has expressed many concerns over the CPP.
However, there is some indication that EPA may make three significant changes to the proposed rule before it finally hits the books, which could alleviate cost- and compliance pain for US businesses:
Easier interstate greenhouse gas emission credit trading
This would get closer to making good on EPA’s promises for a more “flexible rule” by allowing states to trade emissions credits amongst themselves without officially creating a cap-and-trade program, which would be more costly and create barriers to participation, according to Adam Riedel’s article in JDSupra Business Advisor.
EPA may adjust state-specific emission reduction targets
Essentially, this would alleviate the effects that the most manufacturing-economy-dependent states would feel from the proposed rule, since those states would have been disproportionately affected by the emissions targets. It’s pretty clear that EPA overestimated the ease with which some of these states would be able to switch to natural-gas-fired plants, or access renewable energy for its (in many cases non-existent) infrastructure.
Will a recent Supreme Court decision send the EPA back to the drawing board?
Also, the “early mover” states that already began carbon reduction initiatives would have been unfairly hit by the initial emission reduction targets.
EPA may adjust – or remove entirely – the binding interim emission reduction targets
This is exactly the issue that Lanny Nickell, VP of Engineering at Southwest Power Pool, told MetalMiner in an interview he is most concerned about: the virtually unachievable turnaround for interim emissions target goals to be met by 2020, before final goals must be met by 2030.
“Our concern is that the EPA is allowing the states to develop plans to comply with both the interim goals and the final goals, but those plans can be developed as late 2018,” Nickell said. “So if you think about the fact that fairly significant actions have to take place as early as 2020, the period of time between 2018, which is when they will, in theory, complete their plan, and 2020, which is when it would have to be implemented, that’s not a lot of time to build replacement generating capacity.”
He continued, “And it’s not nearly enough time to build transmission infrastructure that would be needed to support any new generation or any change in use of the existing generation capacity that we have.”
But Here’s the Most Interesting Part:
Legal experts are essentially calling the current period ‘the eye on the storm.’ In other words, as Adam Riedel writes on behalf of Manatt, Phelps & Phillips, LLP, “Although the past year has been a relatively tranquil period of waiting and speculating” – as we at MetalMiner have been doing! – “regarding EPA’s regulation of greenhouse gas emissions from power plants, the finalization of EPA’s rules is likely to usher in a transformative period for large sectors of the economy that will last until at least the end of the current administration.”
Which means, folks, get ready to strap yourselves in for a fun ride – and check back in with MetalMiner after the final rule has been announced for in-depth follow-ups on the legal challenges to the final rule of the EPA Clean Power Plan.
With Pepper Construction as the general contractor on the project, Jeff and I wanted to get some eyes on the latest phase of development. So how many tons of structural steel are likely involved here? What are some of the sourcing considerations for an undertaking such as the 1060 Project? And most important, what do the fans have to say about steel sourcing? Listen below!
Music: “All Those Devils…” by Holy Pain (http://www.myspace.com/holypain)
How is the Grain-Oriented Electrical Steel Market Different?
In Part One of this inaugural episode, we ran down the super-basics of what steel dumping is all about…which got us wondering about all the recent anti-dumping hullabaloo surrounding GOES (grain-oriented electrical steel). Luckily, our in-house expert on the GOES market, esteemed executive editor and our first guest Lisa Reisman was on hand to edify us all. Listen below!
Music: “All Those Devils…” by Holy Pain (http://www.myspace.com/holypain)
One may think that the Chinese equity market crash may help investors flock to gold as a safe haven – but not so fast.
A leading precious metals consultancy called Metals Focus, which interestingly, according to this article, has booted GFMS as the primary supplier of statistical data to the World Gold Council, points out that due to China being a gambling culture, “reckons there is more the likelihood that weak equity prices may end up adversely affecting physical gold demand. Losses generated by the impact of the stock market crash may well hit jewellery and gold artefact purchases, while the scale of the fall is such that potential investors nursing big losses may well not have the liquidity to move back into gold.”
Which would likely mean that gold prices won’t see a whole lot of support. As my colleague Raul de Frutos has noted around the office water-cooler recently, “gold’s safe haven thesis” is not really playing out, probably because of a strong dollar.
Saturday Night at the Palladium: Also Down
The palladium prices from all three global markets we track on our IndX (the US, China and Japan) fell by double digits over the past month. Platinum prices also haven’t looked so hot, looking at 6-year lows, mainly driven by weakness across other commodities and industrial metals.
Palladium spot price since 2012. Source: MetalMiner.
So what to watch in palladium and PGM markets in general?
Keep an eye on that US dollar – a strong dollar means a weak South African rand, and that means good news for SA producers to boost supply
Investment activity – ETF and other inflow/outflows
Next China PMI -> What that means for China automotive demand -> What that means for China auto production
Actual Gold, Silver, Platinum, Palladium Prices
For all the exact prices we track – and where they ended up this month – log in or register below!
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Via Rich Anderson/Flickr at http://bit.ly/1GRrmNT, under this license: http://bit.ly/1jxQJMa
Echoing Nancy Reagan circa 1988, the US House of Representatives listened to Mitch McConnell and “just said no” – to the Environmental Protection Agency (EPA)’s Clean Power Plan.
Meanwhile, the US Supreme Court finally ruled on Michigan v. EPA (involving the toxic emissions rule trying to limit mercury and air toxics, aka MATS), and the outcome, just announced today – a 5-4 ruling against the EPA – looks to set a major precedent for federal agencies to consider compliance costs before laying down rules and regulations. That adds fuel to future courtroom fire for the EPA, as news came down late last week that the House voted for a measure to block EPA’s Clean Power Plan, for which the final rule is intended to be released this coming August. They “approved HR 2042, a bill designed [to] block implementation of President Obama’s Clean Power Plan and protect ratepayers from what backers say would be steep price increases under the proposed emissions rules.”
These two developments are very important to the US manufacturing community, since the outcomes will determine how much cost will be passed down from producers to consumers.
The third development that went down today: President Obama signed two new initiatives (and our new favorite acronyms), the TPA and TAA, which is big for the steel industry as well. (Read our full story on that.)
What You Should Know About Michigan v. EPA
What’s this case all about? For a good quick-n-dirty rundown, here’s how Amy Howe lays it out, writing on the SCOTUS blog:
“This is a dispute between the federal government, on the one hand, and states and industry groups, on the other, that arises from the EPA’s efforts to regulate pollution – and in particular mercury – from power plants. The question before the Court is whether, when deciding whether it is going to regulate the emissions from power plants, the EPA must also consider how much it will cost the power plants to comply with the new regulations. States and industry groups had argued that the EPA is required to consider compliance costs at the outset, while the EPA argued that it does not have to consider costs until later in the process, when it issues specific pollution standards. Justice Antonin Scalia is the only Justice who has not yet written a majority opinion for March, so he is likely to be writing this one – good news for the states and industry groups, in all likelihood.”
Obviously, since this case went the way of the states, it will set quite an interesting precedent for the court battles looming for EPA’s Clean Power Plan.
US Steel Industry’s Take on EPA Clean Power Plan
Check out what the leaders in the domestic steel industry are concerned about:
If EPA’s CPP Stands, Here’s How to Best Prepare for Compliance
For a complete educational experience on the main concerns highlighted above – including best practices for procurement/purchasing professionals dealing with regulatory risks such as those posed by EPA’s CPP – please register for our interactive video program, What EPA’s Clean Power Plan Could Cost US Businesses (and What Procurement Can Do About It).
Our upcoming webinar – scheduled a week from today – is sure to create some fireworks. We couldn’t resist getting some commentary on spot-market purchasing from our metals procurement specialist, Raul de Frutos, to help light the fuses. We threw a few questions at Raul, getting at what a price risk management strategy for metals buyers should start with.
Q: When is sourcing via the spot market risky?
A: Basically, if you are doing one of these two things, you are taking a risk:
Buying metal without knowing how much you will sell it for. If you don’t have a price fixed with your customer (or the ability to pass on any and all declines in metal prices to your customers), your risk is any price decline from the moment you buy the metal until the moment you sell it.
You make a sales agreement without knowing what the cost of the metal will be by the time you need to purchase it. In this case, your risk is any metal price increase from the moment you have a sales contract until you actually purchase the metal.
Q: Is there a way to be risk-free when buying on the spot market?
A: The only way is to always have a fixed sales contract by the time you make your metal purchases. This is almost unrealistic, since organizations almost never know their future demand with certainty and often have long lead times, and are not able to agree to a fair price with customers/suppliers, etc.
Q: So if metals buyers are taking risks, does that make them traders/speculators?
A: Pretty much. The only difference is that the trader/speculator is willing to take the risk, while the metal buyer has no choice. The trader starts with no gain, and speculates the market trying for a profit. The metal buyer already starts with a gain (assuming his business is profitable) and speculates to maximize that gain.
Q: What are the key things that successful traders/speculators do to manage their risk?
A: One of the keys for successful trading is to always know your downside risk. The market is unpredictable and prices can always go in the opposite direction regardless of how good your analysis is.
Successful traders always plan ahead, and they have a solid strategy with a set of rules that tells them how to react to the market. So by being disciplined to their set of rules, they always know when to enter or exit a trade. In this manner, they never get caught in mental games, avoiding big losses.
Q: What can metal buyers learn from it?
A: Buyers can’t avoid the risk implied in purchasing metals. Instead, buyers need to accept that there is a risk and then implement a solid strategy to best deal with it. By having a consistent strategy with a set of rules, metal buyers know the right time to buy and avoid making wrong decisions caused by overwhelming panics when markets behave in unpredictable ways.
Our goal at MetalMiner is exactly that: not to make predictions, but to provide buyers with the market intelligence and the set of rules to make sound purchasing decisions.
Agree or disagree agree with Raul? Leave a comment!
The red metal met the Red Cross earlier this week in the kickoff post of our series on health-acquired infections (HAI) and copper’s role in the war against them – but what hospital procurement officers and facilities management departments may want to know is, what’s up with the copper price?
First step in the multi-step program of “What’s Up With the Copper Price?” is a look back at where prices have been: MetalMiner’s monthly Copper MMI® registered a value of 75 in June, a decrease of 2.6% from 77 in May.
The index decline was driven mainly by spot and 3-month London Metal Exchange prices, US copper producer grades 102 and 110, and Chinese copper wire.
What’s Up With That?
Second step in the multi-step program of “What’s Up With the Copper Price?” is knowing some of the underlying fundamentals that may have to do with its shift. For that, we turn to MetalMiner Editor-at-large Stuart Burns, who writes that:
“Analysts expect China’s copper demand to grow by 4% this year, yet that figure is based on considerable use in power grid investment and assumes government spending plans will be met. Power grid investment actually fell by 8.65% in April, according to the FT, and in the first four months of this year China completed Rmb86.6bn of grid investment, only 20% of the planned amount for the year.
Investors agree with the pessimistic outlook cutting their net long positions in copper, joining Chinese speculators who have been betting against copper all year.
A CNBC report says recent weakness is due to weak premiums, high scrap discounts and a failure of the seasonally strongest quarter for copper to translate into solid demand. China’s factories are now approaching a summer slow-down and with it lower metal consumption.”
Outside China, there’s always Mongolia – and the Oyu Tolgoi copper mine, from which Rio Tinto‘s recent bullishness is born. According to the FT, “Rio Tinto recently forecast that copper prices will recover faster than expected with demand outstripping supply within two years. This bullish forecast comes as the Anglo-Australian miner steps up talks in May with the Mongolian government aimed at finalizing a deal on a $6 billion expansion at Oyu Tolgoi, which had been stalled for months. The lack of new copper projects in the pipeline could result in a market deficit earlier than expected,” the paper indicates, “but even if Rio Tinto was right, 2 years is still a long period of time where we could see further price declines.”
What’s Up With the Market?
For the third step in the multi-step program of “What’s Up With the Copper Price?”, we cast our focus onto the future by turning to our metals procurement specialist, Raul de Frutos:
“Copper prices have been rallying since February and, in the short term, they could continue doing so. For the short term, consider placing orders now for known demand. Don’t buy long-term forward, as copper is in a bearish market and we expect prices to lose steam soon and come back to lower levels.”