Articles in Category: Company News

This post originally appeared on our sister site, Spend Matters. It’s being reposted here because of its high relevance to MetalMiner’s manufacturer users.

Large telecom, computer, equipment and other original equipment manufacturers use a network of both third-party resellers and distributors to sell product in multiple countries.

Source: Adobe Stock/aotearoa

Source: Adobe Stock/aotearoa

Many of these local market distributors face cash-flow issues because of lengthy domestic payment terms and limited access to credit facilities or affordable funding. Banks and other lenders can provide direct loans and credit facilities to distributors, backed by varying levels of support and involvement by the corporate OEM.

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A healthy dealer and distributor network is important for current and future sales for the OEM. According to one banker, though, a lot of distributors fall into the mid-market segment and, for them, the average cost of credit is high, and they may even find it difficult to arrange a credit line at all.

But Trade Financing Matters (another of our sister properties) sees great potential for cloud-based e-commerce platforms to leverage a seller-centric version of distributor finance in OEM dealer/vendor/distributor structures.

Click here to download your copy of the report: Distributor Finance – A New Take on an Untapped Market

In this arrangement, the OEM functions as the “middle party” working with its dealer/vendor/distributor network and its network of end buyers (or accounts) to manage invoicing, matching, price validation, dispute management, credit and collections, payments to its dealers and collecting receivables from national account customers. Third-party providers may offer risk management or logistics support to broaden such a solution. Read more

The sale process of Tata Steel U.K. continues and tensions between Iran and Saudi Arabia continue to plague any OPEC production deal.

Cameron Insists Tata Steel UK is Getting Offers

Tata Steel has received a number of serious offers for its businesses in Britain, Prime Minister David Cameron said on Wednesday as steelworkers marched past Downing Street to put pressure on the government to get a deal.

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The U.K. steel industry has been hit by cheap Chinese imports, high energy costs and a global supply glut and in March Tata said it wanted to sell its remaining plants in the country, putting 15,000 jobs at risk.

Iran-Saudi Conflict Still Plagues Any OPEC Deal

The Organization of Petroleum Exporting Countries‘ thorniest dilemma of the past year — at least the one purely about oil — is about to disappear. Less than six months after the lifting of Western sanctions, Iran is close to regaining normal oil export volumes, adding extra barrels to the market in an unexpectedly smooth way that was helped by supply disruptions from Canada to Nigeria.

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Yet, Saudi Arabia is still unhappy with Iran and its production threatening its Mideast oil leadership and dominance. OPEC meets next week.

The fact the CME Group is looking to expand its warehouse network should come as no surprise, the fact it has taken it so long to do it should.

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The market has been ripe for CME to expand the physical delivery locations for the metals it trades in the wake of the last few years furor over long load-out queues at certain London Metal Exchange warehouses across the U.S. and Europe.

LMEring_550

Should the CME Group add a physical trading ring with red couches? Source: London Metal Exchange.

If the CME had a wider network with more tonnage in storage five years ago then, arguably, some of the LME warehouse operators would not have been able to game the system to the extent that they did. The recent launch of zinc and lead contracts by the CME has presumably been a spur to add more locations. Zinc was added last year and lead followed earlier this year.

Dynamic Approach

Yet, a new dynamism in the CME’s approach in recent years is also in evidence. The CME clearly has intentions to take on the older LME’s dominance of the physical trade market, particularly outside the CME’s home base of the U.S. Read more

12 Global steel trade associations today released a statement urging the leaders of the G7 nations to take steps to address the current global steel overcapacity situation which is negatively affecting economies, industries and workers around the world.

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The American Iron and Steel Institute, the Japan Iron and Steel Federation, Eurofer (the European Steel Association), Canadian Steel Producers Association, UK Steel, the German Steel Federation (WV-Stahl), Alliance des Minerais, Minéraux et Métaux (A3M), Federacciai (the Federation of the Italian Steel Companies), the Steel Manufacturers Association (SMA), the Committee on Pipe and Tube Imports (CPTI), the Specialty Steel Industry of North America (SSINA), and the European Steel Tube Association said:

“Government support measures and other policies have contributed to significant global excess capacity in steel, unfair trade and distortions in steel trade flows around the world. Among other things, these market-distorting government policies have prevented adequate industry adjustment in some markets in response to changes in global demand. This is an issue of concern in countries where government policies encourage steel capacity growth without regard to market signals, or where government actions sustain uneconomic or consistently loss-making steel plants that otherwise would exit the market.

“Steel producers in the G7 nations, and elsewhere around the world, highly appreciate intergovernmental attempts so far to cope with the global overcapacity issue, and urge their governments to take urgent action to address this global problem, building upon the work program outlined by high-level government representatives in Brussels in mid-April to address the overcapacity and adjustment challenges facing the steel industry,” the statement, in part, read.

“It is critical that all major steel-producing nations participate in efforts to eliminate trade-distorting policies that are contributing to the current steel crisis,” it continued. “Otherwise, as was noted at the OECD Steel Committee meeting in May 2015, ‘a failure to address or halt market distortions will result in subsidized and state-supported enterprises surviving at the expense of efficient companies operating in environments with minimal government support.’

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“In this regard, we urge the G7 summit in Japan to discuss the need to maintain effective remedial measures, consistent with their WTO rights and obligations, against exports from countries in which market economy conditions do not prevail.”

Jennifer Diggins is the director of Government Affairs at Charlotte, N.C.-based Nucor Corp., the largest steelmaker in the U.S. and North America’s largest recycler of any material (Nucor recycled 16.9 million tons of scrap steel in 2015 at its 23 electric arc furnace mills). Diggins serves as the firm’s liaison to Washington, D.C. MetalMiner’s editorial staff recently had a chance to sit down with Jennifer for a MetalMiner Q&A to discuss recent issues in steel, including Chinese overproduction, the tariffs recently passed against some imports and the role of the international scrap market.

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MetalMiner: Recently, executives from the five leading steel companies in the U.S. told the Congressional Steel Caucus that unfair foreign trade practices have caused an increase in steel imports resulting in the loss of more than 13,000 jobs in the industry this year. How was that number arrived at? Could it be even worse than the 13,000 estimated?

jennifer_diggins_headshot_300_Nucor_052116Jennifer Diggins: There is the potential for the number to be much worse when you factor in job losses in industries that support steel.

People often fail to appreciate the broad impact the steel industry has on the rest of the economy. Every one job in the steel industry supports seven other jobs in the economy. These are jobs in businesses that supply steelmakers with raw materials, contractors who do maintenance work at steel mills, truck drivers who transport our products, just to name a few. When steel production decreases like it has, workers in these supporting industries also are impacted. Read more

In a blatant case of posturing ahead of inevitable compensation negotiations, lawyers —acting on behalf of Brazil’s public prosecutors — are said to have lodged claims totaling $44 billion ($155 billion Brazilian Reais) against mining companies Vale SA and BHP Billiton for the collapse of a dam at their Samarco joint venture last year.

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Needless to say, shares in both companies promptly tanked about 6% even though the prosecutor’s office has a habit of claiming big and settling small. As a measure of just how absurd the figure is, the Financial Times states the 155 billion Reais claim is equivalent to twice Vale’s market value and, if enforced, would bankrupt the company leaving no one to clear up the environmental mess. You can bet the funds would disappear into government coffers, not for the clean-up.

Demands as Negotiation Starting Points

By comparison, the FT reports UBS analysts and others who pointed to the 2011 oil spill off the coast of Rio de Janeiro — that prompted prosecutors to claim $11 billion in damages from Chevron and its drilling partner Transocean — was eventually settled for only $42 million.

Indeed, if Brazil was to genuinely pursue the claim through to its logical settlement it would end up shooting itself in the foot. Samarco is a 50/50 joint venture and so would be the settlement costs but, where Vale is a wholly Brazilian company with 154,000 employees in the country, BHP is listed in London and Sydney with comparatively little else at risk in Brazil.

BHP has already written down its Brazilian asset from $1.2 billion to zero, meaning if it walked away it would lose nothing more, according to Reuters.

Samarco Disaster vs. BP Oil Spill

There is no disputing the dam burst was a disaster and there is widespread belief it could have been avoided. The torrent not only killed 19 people but also obliterated Bento Rodrigues, a town of 800, inundated another larger town with mud, and polluted almost 1,000 km (600 miles) of the Rio Doce.

According to Reuters, the disaster killed fish, contaminated water used for agriculture, and left at least 250,000 people without running water for weeks. It was always going to be expensive but BHP and Vale had already agreed to pay a government-estimated $5.6 billion (R20 billion Reais) over 15 years to cover and repair damages and the firms had thought that was an end to the claims process.

Comparisons have been made with claims against BP over their gulf oil spill naturally enough, but in reality there is little to link them. U.S. prosecutors had BP over a metaphorical barrel with its extensive investments in the U.S. market and could take them to the cleaners with impunity. Arguably, they would not have done the same to a U.S. company.

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Brazil would lose more in the long run doing the same to Vale than they would in ensuring the firm survives and, effectively, clears up the mess. So, while I don’t knowingly hold shares in either company I would be more likely to sell them over anxiety about the firm’s medium-term future in an oversupplied market than the damage overzealous prosecutors are likely to do their profits.

In the first quarter of 2016, PriceWaterhouseCoopers wrote in its “Forging Ahead: Q1 Metals Mergers and Acquisitions” report that deal volume declined to 14 deals in the metals sector valued at $50 million or more.

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However, total transaction value for these deals increased to $8.7 billion, showing growth in both sequentially and on a year-over-year basis. The increase in deal value was driven by substantial increase in megadeal value compared to Q4 2015. At the same time, average deal size also increased by almost 158% to $624.3 million in Q1 2016.

Q1 2016 saw strong megadeal activity, with two deals in which the value of these deals ($5.8 billion) formed 66% of total deal value. The largest deal was an announcement that China-based CRED Holding plans to acquire the entire share capital of Liaoning Zhongwang Group, a China-based manufacturer and wholesaler of aluminum products, for an estimated price of almost $4.7 billion. The second megadeal, also China-based, was the greater than $1.1 billion acquisition of Shandong Yili Electric Power by Shandong Nanshan Aluminum.

We discussed the report, and many of these deals, on the phone recently with Michael Tomera, U.S. metals leader at PwC, and a co-author of the report.

Tomera said PwC counts itself among those still trying to better understand what’s pushing these large Chinese deals.

“It’s difficult to get more insight into the Chinese industry just because of the nature of the market there,” he said. “We’ve been trying, unsuccessfully largely, to interpret what’s going on with the Chinese market. When you couple what’s going on with U.S. producers trying to pursue trade enforcement, that is potentially driving up production. When you hear that prices are starting to rebound, you almost immediately hear that China is going to turn up capacity to take advantage of those prices.

Tomera said that PwC defines a “megadeal” as anything above $1 billion. While the y-o-y was definitely driven by the two megadeals cited above, prices, he said were the real driver behind many of these couplings.

“The real driver was people trying to take advantage of depressed prices,” Tomera said. “Many of these mergers were strategic combinations so they were not price-driven by some company trying to snap up companies that were on sale. Prices had been depressed for a number of quarters, after all. Now that prices have gone up a bit, oil has had a slight rebound, you would think that given the long time we’ve been in this trough that some good things are coming up. We’re now seeing interest from investors and banks, which hasn’t happened in a long time.”

Tomera also said that, from a standpoint of driving cost out of the picture, many steel and aluminum producers are closing down obsolete technology and focusing on higher value, newer products. They are stripping costs out through capturing the efficiency of new technology.

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“Looking at all costs in the system, companies are looking to drive efficiencies wherever they can,” he said.

Freeport-McMoRan Inc. has agreed to sell its majority stake in the Tenke copper project in the Democratic Republic of Congo to China Molybdenum Co. Ltd. for $2.65 billion in cash, reducing the U.S. miner’s debt and handing the Chinese company one of the world’s prized copper assets.

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The deal is a vote of confidence in copper, which many consider a bright spot among base metals.

LME Sells Voice-Brokered Steel Scrap Contract

The London Metal Exchange has recorded the first voice-brokered trade of its LME Steel Scrap contract. The trade was executed on May 4 by INTL FCStone Ltd. on behalf of Stemcor.

The new additions to the LME’s ferrous suite — LME Steel Scrap and LME Steel Rebar — have seen considerable support from the market since their launch in November 2015. 35,990 metric tons (3,599 lots) of scrap and 9,600 mt (960 lots) of rebar have been traded since the contracts launched.

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A new single-trade record of 1,000 mt (100 lots) of scrap was set in last Wednesday’s voice-brokered trade. The new cash-settled futures contracts can be traded monthly out to 15 months and have a lot size of 10 mt.

The top steel executives in the U.S. called the fight against cheap steel imports a “war” in the American Iron & Steel Institute‘s annual press conference at its general meeting in Salt Lake City, Utah. The picture they painted was bleak.

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Domestic steel capacity utilization averaged just 70% in 2015. It’s still only at 71.3% capacity utilization for Q1 of this year. They also said 13,000 steel jobs have been lost in the past year. All pointed the finger at global overcapacity.

Crisis Level

“Global overcapacity has been a problem for a long time but, today, it is a crisis,” said John Ferriola, chairman, president and CEO of Nucor Corporation and the newly elected chairman of the AISI for 2016. “This overcapacity, combined with declining demand from countries like China is fueling continued high levels of dumped and subsidized imports into the U.S. market. China has subsidized the growth of its steel industry through grants, low-interest loans, free land, low-priced energy and other raw material inputs. Simply stated, the Chinese government is a company disguised as a country and they are waging economic war on the United States.”

steelexecs

Executives from major North American steel companies addressed the media at the general meeting of the American Iron & Steel Institute in Salt Lake City. Source: Jeff Yoders/MetalMiner.

Thomas J. Gibson, president and CEO of AISI, called upon other steel making nations to take action to eliminate global steel overcapacity. Gibson also said the U.S. government should vigorously enforce trade laws to fight against the dumping of cheaper steel products and the implementation of market-distorting policies and practices by other steel producing nations, particularly China.

China’s Still a Non-Market Economy

The executives also said that China must continue to be treated as a non-market economy for anti-dumping purposes according to the World Trade Organization. Read more

One province is taking a novel approach to ending Chinese overcapacity, using prizes to discourage overproduction and pollution in steel and coal. Haliburton and Baker Hughes have decided to call their $28 billion merger off.

Sichuan Province Tries Prizes to Halt Overcapacity

China’s southwestern Sichuan province has allocated 2 billion yuan ($308.87 million) in prize money for companies that reduce their overcapacity in industries including coal and steel, state media reported on Tuesday.

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The funding will be given to local governments and Sichuanese companies that are shifting away from energy-intensive, high-polluting, unsafe industries that do not comply with government policies aimed at dealing with overcapacity, the Sichuan Daily, the official newspaper of the provincial government, reported.

Baker Hughes, Haliburton Scrap Merger

Oilfield services provider Halliburton Co. and smaller rival Baker Hughes Inc. announced the termination of their $28 billion merger deal on Sunday after opposition from U.S. and European antitrust regulators.

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The tie-up would have brought together the world’s No. 2 and No. 3 oil services companies, raising concerns it would result in higher prices in the sector. It is the latest example of a large merger deal failing to make it to the finish line because of antitrust hurdles.