Articles in Category: Logistics

While London Metal Exchange warehouse queues have all but disappeared, with the exception of Vlissingen in the Netherlands for aluminum and New Orleans for zinc, the even better news is physical delivery premiums have dropped back closer to historically lower levels and more importantly taken on a flat, stable pattern.

Free Download: The June 2016 MMI Report

As Reuters’ Andy Home points out in a recent article, the reasons for the horrendous spike in physical delivery premiums last year were always contentious and, in reality, multiple in origin but arguably long load-out queues played a part, although we always maintained they were as much symptom as cause of a deeper malaise in the physical aluminum market.

Aluminum Premiums Easing

Still, the return to a steady $170-180 per ton level for the Midwest premium and a stable range of $90-120 per metric ton range for Japanese Port premiums is a welcome relief for consumers after the sky high levels of 2014-15 when Japanese rates hit $425 and the MW premium was well over $500. Read more

OPEC oil export revenue is down and if Hong Kong Exchanges and Clearing Ltd. can’t bring China to the London Metal Exchange, it’ll bring the LME to China.

OPEC Export Revenues Down Again

OPEC’s full-year 2016 oil export revenues will probably fall 15%, down for the third straight year and possibly the lowest in more than a decade before rising in 2017, the U.S. Energy Information Administration (EIA) said on Wednesday.

Free Download: The June 2016 MMI Report

Members of Organization of the Petroleum Exporting Countries (OPEC), including Iran, will likely earn about $341 billion in 2016, about 15% below 2015 levels, based on projections of global oil prices and the group’s production levels, the U.S. government’s EIA said in a report.

HKEx Tries Bringing the LME to China

Some four years after shelling out a top-of-the-market $2.2 billion for the London Metal Exchange, it appears owners Hong Kong Exchanges and Clearing Ltd. (HKEx) are still battling to make the venerable old Western institution work with China, the new and dominant center for metal demand.

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HKEx Chief Executive Charles Li used the LME Week Asia seminar today to tout the latest plan, which involves bringing the LME’s expertise in physical metals markets to China, where financial instruments dominate trade.

Scrap companies often get a bad rap. Yet some of the more sophisticated ones clearly provide tremendous value by elevating the procurement function within manufacturers.

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Separated scrap. Photo: United Scrap Metal.

We recently caught up with Brad Serlin, President of United Scrap Metal Inc., and toured their Cicero, Ill., operation to better understand what makes a “best in class” scrap recycling program and why most manufacturing organizations need to formally manage these types of programs. Read more

CNBC recently reported that home construction weakened in March even as sentiment among builders remained high, but what’s more interesting is a quote from a Goldman Sachs report further down.

Free Download: The May 2016 MMI Report

“Our analysis of payroll growth and wage inflation data suggests that labor shortages may not be to blame for the mediocre level of housing activity,” analysts wrote in a Goldman report. “We find that, on the one hand, the construction sector has experienced the largest job growth over the past year.”

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U.S. Construction workers are using 3D imaging, laser scanning and drones to place structural members like this one. Can the skilled labor shortage possibly be over? Source: Jeff Yoders/MetalMiner.

Construction growth has led all other sectors at 5%, according to the Bureau of Labor Statistics, but average hourly earnings in construction gained only 2.2% over the past year, which is about the national average.

Still, Goldman’s pronouncement that there’s simply no construction labor shortage anymore very much runs the opposite of what the industry has claimed for years. The numbers only tell half of the story because a lack of skilled labor is what plagues most construction sites.

Nearly 70% of home builders surveyed by the National Association of Homebuilders last June reported a shortage of carpenters, for example, up from 63% in 2014. And in a July survey by the Associated General Contractors of America, 86% of commercial builders said they’re having trouble filling hourly or salaried positions, up from 83% last year.

This may not look like it affects the bottom line to Goldman-Sachs, but it certainly does when only carpenters, iron workers or electricians can move your project along.

Many high schools have phased out shop classes and parents increasingly have steered graduates to four-year colleges and white-collar careers. The Home Builders Institute, which does training, and local home builders groups, recently rolled out more instruction programs but it takes at least 12 to 18 months for a new recruit to become a productive worker. That’s why pay increases had reached as high as 2.6% last year before falling back down to around the national average that Goldman cited. It’s likely a small rest in the rate of increase rather than a full stop, as unfilled job openings in the construction industry have risen steadily since 2009.

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So, while I respect Goldman Sachs and its analysts’ learned opinions, I’m not ready to bless this report’s findings and call the skilled construction labor shortage over. Mike Rowe may have to fill all of the dirty jobs that are still out there before that happens.

Regardless of where you sit in metals markets, liquidity and cash flow serve as the lifeblood of the supply chain and the individual company.

Free Sample Report: Our April Metal Buying Outlook

Manufacturers, service centers and producers largely play a zero-sum game: optimize working capital at the expense of broader total-cost, innovation and risk-management opportunities that ought to bring all parties closer together.

In a zero-sum game, buying organizations — when engaging directly with suppliers — often deploy forceful if not arbitrary rules around payment terms, delivery terms and even the reduction of inventory levels (another tool in the working capital arsenal). All of these tactics are used in a game called “reducing working capital” but each introduces additional risks as well.

Inventory Finance and the Big Picture

Managing inventory effectively, as part of a broader working capital management and/or balance sheet improvement strategy, matters even more in volatile markets, particularly when doing so without negatively impacting supplier relationships. Fortunately, some new techniques and business practices based on inventory financing tied to broader procurement and supply-chain strategies have started to become more mainstream. Manufacturers, service centers, producers and even trading firms have begun working with banks, trading firms, third-party lenders and other partners/lenders (or a combination) directly.

In short, procurement and supply-chain inventory financing can allow an organization to build on its balance sheet and/or take advantage of additional liquidity if needed. None of these forms of financing or techniques negatively impact suppliers.

Procurement-led inventory financing is a complement to other sources of capital. Even for organizations with a tight revolving credit facility, they can still access unsecured credit and “lock-in” balance sheet improvement opportunities without sacrificing actual physical inventory.

What Can It Do For Me?

Done right, procurement-led inventory finance offers a range of benefits:

  • Working capital and balance sheet improvements that align with executive, procurement, treasury and accounts payable strategies
  • An ability to keep current credit facilities and tap new ones
  • Low risk and predictable capital: another “tool” in the working capital belt with assured outcomes (unlike other options)
  • Supply-chain risk reduction
  • Improved supplier relationships
  • Lower landed cost of goods
  • Ability to source globally without impacting working capital

Inventory financing approaches today are changing in part because of increased available capital and a willingness to lend. In addition, new technologies provide increased transparency and connectivity between buyer and supplier systems,  reducing risk for all participants.

Free Download: The March 2016 MMI Report

As our introduction to the topic continues, we’ll explore how inventory finance works as well as some of the new tools and models that can streamline the process. In the meantime, for further reading on the topic, see our network site Trade Financing Matters:

Stepping Out of the Box – One Bank assists with Inventory Finance

Inventory Purchase Financing – The Flip Side of Funding Trade Payables

Inventory Purchase Financing – The Flip Side of Funding Trade Payables (Part 2)

The classic “cost breakdown” gets a bad rap these days.

Free Download: The February 2016 MMI Report

It seems like an old school concept, but we’d argue it’s getting a new lease on life as procurement organizations seek more strategic supply market intelligence insight.

Cost breakdown analysis

Cost breakdown analysis can create a competitive advantage for your business. Source: Adobe Stock/Morchella.

In fact, in recent weeks we’ve fielded an increasing amount of phone calls about obtaining metal price data for both should-cost and total-cost models. These organizations range from the small manufacturer seeking to renegotiate supply contracts with Chinese suppliers to large retailers seeking to develop supplier should-cost models for negotiation purposes.

Recently, Bertrand Maltaverne of software provider Pool4Tool and formerly of Schneider Electric, led a webinar discussing the concept of TVO (total value of ownership) and walked the audience through several distinctions between TVO and its cousin, TCO (total cost of ownership).

For more specifics on how to model TVO for your organization, join us at the ISM/Spend Matters Global Procurement Tech Summit where I will be co-leading a workshop on Cost Breakdown Analysis with Pool4Tool Founder and CEO Thomas Dieringer.

As someone who has led many workshops and discussions on TCO, the distinction between TVO and TCO should compel all buying organizations to take a second look at this potential source of competitive advantage. Consider the following:

  • TCO considers the “cost basics” such as direct material costs, direct labor costs, direct operating and process costs, manufacturing overheads, research and development, selling general and administrative expenses, etc. plus profits.
  • It also considers entire life-cycle costs from the purchasing market, research costs, insurance, staff training, switching costs as well as ongoing operating costs such as consumables, spares, etc. to end-of-life disposal costs such as site cleanup, decommissioning costs, etc.
  • TVO, on other hand, considers other factors not traditionally incorporated into “should cost” models. These factors might include value drivers such as productivity gains, risk reduction such as CSR risk, financial, logistics and quality; it is expressly tailored to the specific objectives of the buying organization.

Two other elements make TVO unique — the first involves internal collaboration across functions in defining value and the second involves integration of those functions and subsequent processes into the procurement evaluation process.

Free Sample Report: Our February Metal Buying Outlook

These integrated processes become crucial in helping define category strategies, supplier evaluations and risk management practices. If this sounds theoretical, it is not. Consider how some organizations view sustainability, for example, as a key driver of shareholder value. And though we folks in procurement often focus on shareholder value in terms of COGS or reduced SG&A expense, TVO makes metal buying a whole lot more strategic.

Relative performance, not absolute performance, also drives value, according to Pool4Tool. Companies that develop index-based models reflecting real market prices (MetalMiner has long advocated them and, in the name of full disclosure, provides such data) and sophisticated cost models have a leg up over organizations that don’t use these tools.

Follow Lisa Reisman on Twitter @LReismanMM

29 States that are challenging the Environmental Protection Agency‘s Clean Power Plan on Tuesday urged the US Supreme Court to block the controversial regulations slashing carbon emissions from existing power plants while they’re being litigated, after the Washington, D.C. Circuit refused to issue a stay last week.

Free Sample Report: Our January Metal Buying Outlook

The D.C. Circuit said Thursday that states and industry groups challenging the Clean Power Plan hadn’t satisfied the strict requirements for granting a stay.

In its Supreme Court application for a stay, West Virginia and 28 other states and state agencies argued that a majority of justices would likely agree that the US Environmental Protection Agency doesn’t have the Clean Air Act authority to craft the rule.

The MATS Precedent

The states might have a strong case for the stay simply because the High Court — at least a 5-4 majority of the justices — sided with them in an earlier case, last year, that pitted the EPA against a similar group of states involving its toxic emissions rule, which tried to limit mercury and air toxics, aka MATS.

That ruling set a major precedent for federal agencies, that they had to consider compliance costs before laying down rules and regulations. This would seem to favor the states filing suit to stop the CPP, as its compliance costs are not calculated, in any way, into the “plan.”

States are, rather, given up to three years to come up with their own plans to implement the CPP, although they may elect to have the EPA do that work for them.

The Effect of a Stay

Of course, the Supreme Court still might not stay the rule while the case is heard and simply wait for the D.C. circuit — which did move the case up on its docket to June — to rule and then hear an appeal to its decision, no matter which side wins. That would mean states would need to comply for a process that could take at least a year to shake out in the legal system.

Remembering that the EPA would only need to sway one justice to its way of thinking, then, perhaps the compliance process playing out over a year could favor the federal government. But, considering that Justice Scalia wrote the opinion in the MATS case, the precedent seems to be staunchly against them.

Free Download: The January 2016 MMI Report

“It is not rational, never mind ‘appropriate,’ to impose billions of dollars in economic costs in return for a few dollars in health or environmental benefits. Statutory context supports this reading,” Scalia wrote in the MATS decision.

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James May

US industrial output has been falling on a month-on-month basis since August and the manufacturing PMI fell below 50 in late 2015. Even with the bounce in January PMI data to 52.7, the manufacturing outlook remains uncertain after an extended period of weakness and continued currency strength.

Free Download: New! The January 2016 MMI Report

Yet, we suggest that US mills are (right now) in a sweet spot in terms of pricing. Are we crazy?

After a dismal 2015, steel mills are finally in a position to drive prices higher. It may not be for long, but any buyers that are short of flat steel in the short term will have to pay substantially higher prices in the next few months. We suggest that prices could rally $100-150 a ton between December 2015 and April/May 2016.

Supply Finally Constrained

Import and domestic supply is curtailed. US mills operated at 60-65% capacity in December.

With continued uncertainty regarding anti-dumping actions, finished steel imports are slowing. Importers cannot start selling again until final determinations are in, meaning that June arrivals are probably the earliest.

US HR, CR & HDG Imports (000 metric tons)

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Source: US Department of Enforcement & Compliance

Read more

A new report released by the Solar Energy Industries Association and produced by GTM Research forecasts that US Solar installations will more than double next year, reaching 15.4 gigawatts of solar power installed in 2016.

Free Sample Report: Our Annual Metal Buying Outlook

Worldwide, growth in solar installations is expected to rival the boom occurring in the US. Berlin-based research firm Apricum forecasts that 54 GW will be installed worldwide in 2015, with new capacity additions reaching 92 GW by 2020. The largest market for the most common type of panels, solar silicon photovoltaics will be China, with 180 GW of total capacity installed by the end of 2020, followed by the US (83 GW) and Japan (57 GW).

Solar Panel array

Photovoltaic solar array at the National Renewal Energy Laboratory.

As 2015 ends this week, US installed capacity of photovoltaics stands at 7.4 GW, an improvement over 6.3 GW last year.

Part of the reason for the surge was purchases made by individuals and utilities to beat the scheduled expiration of the federal investment tax credit at the end of the year. That all changed when congress passed a long-term extension of the wind and solar tax credit as part of its omnibus spending deal earlier this month.

Established by the Energy Policy Act of 2005, the wind/solar investment tax credit provides a tax credit of 30% of the value of solar projects. Annual solar installations have grown by at a compound rate of 76% since the act was implemented in 2006. Under the new scheme, the 30% solar tax credit will extend through 2019 and then decline gradually to 10% in 2022. After 2022 the credit will be eliminated for residential solar installations and will continue at 10% for commercial ones. Bloomberg New Energy Finance predicts that the move by congress will add an extra 20 gigawatts of solar power over the next five years.

Solar silicon prices have remained stubbornly low and, while this extension won’t necessarily help them rise, it will spur utilities and homeowners to adopt them for electricity generation. The low prices, in this way, are a feature of expanded adoption and a not a bug as the generous discounts, on top of low prices, will make solar a cheaper alternative to other low-price power supply technologies such as natural gas.

The extension of the tax credit through 2019 is a boon to photovoltaic manufacturers and wind/solar energy suppliers who were quick to celebrate the long-term extension as an important step toward their goal of developing clean energy at an affordable cost through the development of solar projects.

Free Download: The December MMI Report

“This is a game changer for our company and will finally allow us to plan with certainty our growth and expansion over the next several years,” said John Billingsley, Chairman and CEO at Dallas-based Tri Global Energy. “Tri Global Energy plans aggressive expansion of both our wind and solar divisions into diversified geographical areas across the US.”

Airbus and Autodesk‘s design studio, The Living, have designed and developed the largest 3D-printed metal part for a commercial airplane in history, what they call a “bionic” partition that is 3D-printed from a direct metal laser sintering (DMLS) “printer” that uses a new super-strong alloy called scalmalloy to achieve the lightness of aluminum with the strength of titanium.

Free Sample Report: Our Annual Metal Buying Outlook

Already used for small parts, often with complex shapes, the Airbus/Autodesk project brings additive manufacturing into the plane’s cabin. The assembly is for a partition that separates the passenger cabin of an A320 from the rear galley.

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Autodesk CTO Jeff Kowalski unveils the new Airbus A320 “bionic” partition, made of 112 3D-printed parts. Photo: Jeff Yoders

The resulting “bionic” replacement is a stronger partition compared to the current model that also saves 55 pounds in weight. If one final test is passed next month, the new partition will be in every new A320 next year. The companies estimate that using it will remove 96,000 tons of CO2 a year thanks to less jet fuel being burned to transport the lighter partition system. Read more