Articles in Category: Global Trade

Commodities gave important signals in April/May. The performance of commodity markets has a heavy impact on the price movements on any industrial metal. If you are a metal buyer, it doesn’t matter if you buy aluminum, copper, steel or tin. The information in this article is important for you.

Reuters/Jefferies CRB commodity index. Source: MetalMiner analysis of stockcharts.com

About a month ago I noted that while industrial metals were on the rise, commodities were range-bound, a sign of sluggish global demand. As I had written, “a healthy bull market in base metals should be accompanied by a bull market in other commodity markets.” Commodities not only have struggled to make new headway but in the past few days they weakened significantly. Recent moves in China have caused a significant shift of sentiment in financial markets.

Two-Month Trial: Metal Buying Outlook

China Curbs on Credit

Interest rates in China have risen to the highest level in two years amid the country’s tough talks on curbing credit. China is putting on the brakes on credit growth, and the effects of those policies are already starting to be felt. As the Financial Times reported, “China Vanke, one of China’s biggest property developers, was [recently] forced to drop a bond sale… blaming changes in market conditions.”

The noticeable tightening in Chinese monetary policy is bad news for its property markets. The country has also pledged to halt risky local funding for the construction of infrastructure projects. Investors know that this will hurt demand for commodities and industrial metals. Read more

President Donald Trump has come in for a fair amount of criticism for his perceived failure to achieve many of his campaign promises in the 100-day deadline he set himself (and now denies, but that’s another issue).

Implementation of a case against China as a currency manipulator and building the U.S.-Mexico border wall has given way to the greater pragmatism of coercing China to put pressure on North Korea with both carrot and stick incentives, and of a “last minute” retraction of a supposed imminent announcement to withdraw from the North American Free Trade Agreement (NAFTA) last month as a precursor to talks down the line.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The Economist, as usual, gives an impartial and balanced assessment of events in two recent articles. The first reports that although the president has not been able to implement much of the headline objectives, the combination of executive orders, tweets and off-the-cuff announcements have set in motion a number of significant developments.

Pulling out of the Trans-Pacific Partnership (TPP) gave a clear message from day one that here was a president who meant what he said — that you took all the bluster as hot air at your peril. The very uncertainty in his lack of planned policy and spur-of-the-moment reaction to events has put trade partners, friends and enemies alike on uncertain ground — not a bad negotiating position to force on the other side, if you see all interaction as a negotiation.

More significantly, the U.S. has started an investigation into whether steel imports are a threat to national security and followed up with a similar probe, announced late last month, into aluminium imports. Trade negotiators at home and abroad are said to be aghast at the former leader of the rules-based trading system and a major backer of the World Trade Organization completely shunning the system it created and resorting to obscure legislation to achieve the president’s promises. Read more

Proposals based on environmental grounds to limit polluting industries in the greater Beijing area during next winter’s primary heating period (November to March) gave a boost to the aluminum market from the moment they were first mooted last year.

Beijing’s robust implementation of environmental audits and regulation of aluminum plants this year have added to a sense that the authorities are getting serious about pollution and the environmental impact of energy intensive industries like aluminum smelting. But, as Reuter’s columnist Andy Home opined, it is protectionism in the rest of the world that is going to add backbone to these trends and act as the driving force behind further action on Beijing’s part.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

In an article this week, Home explained how the latest investigation into aluminum imports, along the same lines as an earlier steel case, has been launched under Section 232(b) of the Trade Expansion Act of 1962, which lets a president act against imports on national security grounds. The reasoning is the U.S. has but one smelter left in operation, Century’s Kentucky smelter, capable of producing the high grades required for defence and aerospace companies making combat aircraft and the like.

China supplies almost no primary aluminum to the U.S. market. Following U.S. smelter closures, surging imports are being increasingly met by Russia and the United Arab Emirates, while the bulk continues to be supplied by Canada, as the graph below from Reuters shows.

Where China has an impact is in semi-finished products, such as sheet, plate, foil, bars, tubes and sections. Here the growth of Chinese exports to the world — and U.S. imports — has been much more significant. According to Home, on that measure China has been by some margin the largest-volume supplier to the U.S. market in recent years. Read more

This is the second in a two-part interview with Paul Noel, senior vice president of procurement solutions at Ivalua, Inc. Missed Part 1? Read it here.

MetalMiner: How do you see procurement and supply chain applications overlapping (or not) from a technology perspective in manufacturing? What is “the line” between them (if there is one anymore)?

Paul Noel: Procurement and supply chain applications traditionally overlap. Both these applications have the following:

  • Supplier master data and item master data
  • New product introduction data, such as BOM, designs, specifications and project plans
  • Product quality data, such as initial reviews, quality certs, first article inspection data, APQP reviews and data
  • Supply chain and supplier risk data
  • Supplier performance, KPIs and error data, along with improvement plan data
  • Assets and tooling data, including supplier loaned and leased assets
  • Inventory data, such as central, in-factory stock-rooms, vendor managed inventory data, etc.

Our view is that procurement applications are developing and innovating at a more rapid pace than supply chain applications when it comes to affecting core business operations, expanding their functional footprint into the supply chain, and in some cases, becoming the primary master source of record (e.g. in case of supplier master and risk data). As an analogy, procurement applications today represent multiple “garage bands” — some in the process of becoming rock stars — of the business, while supply chain is a conductor, orchestrating activity deep within the supply base. Both are different — and needed.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

Supply chain is, however, continuing to orchestrate activity.

MetalMiner: What is your view on commodity price volatility? What are you hearing from your customers?

Paul Noel: The most current information is key, of course. That means that when you are buying volatile commodities, you need to have a facility to quickly perform item validations with contracted vendors to ensure you are seeing the best price for the current market. In some industries, it needs to be a lights-out operation that reminds suppliers of their commitments and solicits their re-bids on a schedule. This isn’t just asking for the latest price, but also changes in packaging, lead time, ship-from information and so forth. Read more

President Donald J. Trump has completed his first 100 days in office and thus far has signed into law 28 pieces of legislation.

While Trump has made traction in some respects, the fate of the nation’s steel industry was still up in the air — that is, until Trump signed a Presidential Memorandum in late April calling on Department of Commerce Secretary Wilbur Ross to prioritize an investigation into the effects of steel imports on U.S. national security.

Two-Month Trial: Metal Buying Outlook

Here are three things you should know about this directive and what it could mean for the nation’s steel industry.

The Trade Expansion Act of 1962

The investigation is being conducted under Section 232 of the Trade Expansion Act of 1962. According to the Department of Commerce, Ross is tasked with determining the following:

  • “Whether steel imports cause American workers to lose jobs needed to meet security requirements of the domestic steel industry;
  • Any negative effects of steel imports on government revenue; and
  • Any harm steel imports cause to the economic welfare of the U.S.”

The Current Situation

Despite an existing steel industry, steel imports saw a 19.6% year-over-year increase in February, and, currently, imported steel accounts for 26% of the U.S. market share, according to the Department of Commerce.

Further, the U.S. steel industry is only operating at 71% capacity, and jobs in the industry has continued to take a steady hit. Read more

The 100-day mark for President Donald Trump’s administration has come and passed. When it comes to the effects of his policies on various markets, only one thing is certain: uncertainty.

That uncertainty also applies to non-ferrous metal markets, which saw a boom in optimism after Trump’s election last year. For example, copper rose to a 15-month high on Nov. 9, 2016. However, that optimism has dwindled through the first few months of his administration, due to lingering uncertainty over the administration’s ability to actuate campaign promises.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

While market fluctuations are a confluence of many forces, beyond what the president does or does not do, the president does have substantial influence, both in word and deed. Thus far, Trump has been more influential in the former, campaigning on a renewed focus on mining (particularly with respect to coal) and significant investment in American infrastructure.

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals,” Trump had said during his victory speech in November. “We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it.” Read more

MetalMiner’s sister site, Spend Matters, recently put out a series of questions to a range of experts at technology vendors. Our line of questioning centered on the technology renaissance, which is in its early days of taking shape, as more firms take advantage of specialized manufacturing-centric procurement technology. We will feature this series on MetalMiner in the coming weeks and hope you look forward to it as much as we do.

Two-Month Trial: Metal Buying Outlook

The first interview (divided into two parts) features Paul Noel, who serves as senior vice president of procurement solutions at Ivalua, Inc., a procurement technology provider that works with leading manufacturers such as Meritor, Whirlpool, Michelin, Faurecia, Valeo, Thales and PSA Peugeot Citroën.

MetalMiner: Why are we hearing about a “direct procurement” renaissance of sorts in terms of procurement technology. What has changed?

Paul Noel: The rise of interest in procurement technology for direct procurement is due to the confluence of four trends.

First, the current economic climate is characterized by slow global growth, a retreat from global trade to nationalist economic policies and interest rate and tax policy uncertainty that have the potential to re-draw supply chains. In this environment, manufacturers that account for the bulk of “direct procurement” cannot fully control their top line. However, they do have control over their bottom line, and procurement technology is one of the key levers to reduce direct spend.

Second, since the early 2000s, manufacturing executives have focused more on managing indirect procurement and less on direct procurement — as indirect spend was then the biggest untapped opportunity. Enterprises have done a great job getting a handle on indirect spend, partly due to successful adoption of procurement technology. Direct spend now represents a big untapped opportunity from a procurement technology investment standpoint, given past under-investment.

Third, procurement technology that’s relevant for direct spend — partly owing to similar success in indirect spend — has developed at a rapid pace in recent years. When e-procurement first came out, direct materials was already pretty much set with MRP demand communicated over EDI. Why would you need human-centric e-procurement with that in place? Today, however, if you look at teams of direct materials procurement people, you realize there is a need to help them deal with the volume of exceptions thrown every week by MRP. Spot bids, expedites, last minute part changes. All of these need human intervention, and those humans need technology.

And fourth, with the success of both procurement and supply chain leaders in large global companies, these functions have become even more centralized across direct/operations and indirect, as well as globally across regions. With this organizational shift, these leaders want to adopt procurement suites that can address both indirect and direct spend in a single suite — hence extending their indirect procurement technology suite to address also direct procurement. Read more

AdobeStock/khwaneigq

International trade hasn’t been this contentious since before the Great Depression, and it is causing free traders much concern. We’ve seen a number of trade cases affect some U.S. imports such that the U.S. steel industry effectively implemented a full ground stop on many steel products (though that ground stop has been short-lived). Some political appointments have caused a backlash amongst some free-trade Republicans, importers, traders and manufacturers.

FREE REPORT: How Circumvention Impacts Both Downstream, Value-Added Manufacturing

This administration’s stance on trade has helped galvanize both the case for and against trade. These arguments are centered on several themes related to the notion that China’s loss is U.S. value-added manufacturers’ gain — if China chooses to “dump” its products at a loss, then shouldn’t value-added manufacturers take the opportunity to purchase [steel and/or other commodities] to increase their overall cost competitiveness on finished goods?

Read more

You can’t accuse the aluminum market of being boring, which is exactly what most consumers don’t want to hear.

As buyers, we like nothing better than a nice steady predictable market. A little bit of price inflation is good if you are a stockist or trader, as it keeps the market turning over and encourages forward buying. But as consumers, most buyers would rather the market be flat and boring, the same next month as this and predictable for six months out. “Can’t think when it was last like that,” you will say.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The problem is that the most highly traded metal on the LME and the second most highly produced metal after steel is still buffeted by squalls from every quarter. Recently, talk (and let’s remember that so far it is mostly talk) of capacity closures next winter in the greater Beijing hinterland to combat pollution has helped lift the price by encouraging talk of scarcity. Beijing has shown solid intent in this direction, already denying planning approval to 2 million tons of new capacity in China’s northwest province of Xinjiang and clamping down hard on plants elsewhere that it deems to be failing environmental standards.

The next target is said to be smelters in China’s heavily industrialized provinces of Shandong and Inner Mongolia. Of China’s total illegal aluminum capacity (which, according to some sources, is between 3.7 million metric tons and 6.6 million metric tons), the clear majority of it (up to 4.3 million metric tons) is situated in Shandong, Aluminium Insider reports.

Free Sample Report: Our Annual Metal Buying Outlook

This means that the impact of proposed closures could be profound. While Beijing was being dismissed for environmental posturing just months ago, the market is now taking it at its word. The expectation is that we will be seeing more of the same, with further closures likely during this year. Combined with the potentially more serious closure of alumina refining and carbon anode production capacity removal of even 2-4 million tons out of China’s 31+ million metric tons annual primary smelting capacity would tighten the market, probably pushing it into outright deficit.

At the same time, among a flurry of 100-day directives emanating out of the White House, President Donald Trump is due to sign an executive order this week calling for the Department of Commerce to accelerate the investigation on aluminum imports in the name of national security. The allegation is that damage to the U.S. aluminum industry from imports, particularly overproduction in China driving down global prices, has implications for national security. A positive ruling on this could result in tariffs or other restrictions against the estimated 55% of current US supply that is met by imports.

Both developments could be supportive of higher prices this year. In fact, when you look at the aluminum market, set against a backdrop of solid global growth and continued above GDP growth in the use of aluminum, you must ask where negative price pressures are to come from.

Free Download: The April 2017 MMI Report

One could be a more rapid appreciation of the U.S. dollar. A stronger dollar usually has a negative impact on commodity prices, but the market is already factoring in three Fed rate rises this year, and potentially inflationary tax changes proposed by the new administration are at least a year away from implementation. Short-term profit taking aside the only medium-term cap could be a psychological one of $2,000 per ton. But once breached, that becomes a support level for further rises.

It will certainly be an interesting year for aluminum.

India’s steel story continues to shine. The country’s consumption of finished steel goods is expected to grow by 6.1% in 2017 compared with 2016.

According to the World Steel Association (WSA), India’s steel product demand could reach 88.6 million tons in 2017, up from 83.5 million tons in 2016. WSA was also quite positive on India’s steel demand in 2018, projecting a growth of 7.1% to 94.9 million tons.

Two-Month Trial: Metal Buying Outlook

Steel consumption in India’s neighboring country China, however, would remain flat in 2017. The WSA estimated a 2% slump in demand for 2018.

The Indian Steel Association, too, has said publicly that the country was well on its way to becoming the second largest consumer of steel, beating the United States to the second spot.

The WSA said in its report that the U.S. was expected to continue to lead the growth in the developed work in 2017-18, based on strong fundamentals, newly announced measures related to fiscal stimuli, and rising infrastructure spending. It has estimated that steel demand in the U.S. will grow by 3% in 2017 to 94.3 million tons and then by 2.9% in 2018 to 97.1 million tons.

Free Download: The April 2017 MMI Report

In India, in a further fillip to steel production, the government was contemplating making the use of Indian steel compulsory in all government or public sector funded projects. This would raise the per-capita consumption from 61 kilograms (134.5 pounds) to 160 kilograms (353 pounds) and increase production from 120 million ton to 300 million ton by 2030. The indication of this was recently given by Union Minister for Steel Chaudhary Birender Singh.

After reviewing the performance of Rashtriya Ispat Nigam Limited (RINL), the minister told reporters that “stringent measures” like imposing anti-dumping duty and minimum import price (MIP) had led to imports falling by 39% and exports increasing by 57%.

He added that the India’s national policy on steel would be unveiled soon, after receiving approval of the Union Cabinet.

Free Sample Report: Our Annual Metal Buying Outlook

The move to make use of “Make in India” steel mandatory by government bodies comes in the wake of the central government’s commitment to support the domestic steel sector, which has been incurring losses during the last couple of years due to excess production and dumping of steel products from China into India.

Incidentally, India was aiming for a steel production capacity of 300 million tons by 2030, while the current capacity is 120 million tons and production was 90 million tons.