Articles in Category: Logistics

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.

JamesMayheadshot_150

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)

JamesMay_steel_278_012116

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.

yoders_3Dprinted_airbus_550_120115

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

There was major currency and anti-dumping news this morning.

IMF Adds Chinese Yuan to Reserve Currencies

China notched an economic milestone Monday, as the International Monetary Fund added the  yuan, also known as the renminbi, to its elite basket of reserve currencies, a move designed to spur greater liberalization in the world’s second-largest economy.

The Wall Street Journal reported the decision—effective next October—confers international status on China’s currency as the government starts to ease restrictions on its rigidly controlled exchange-rate and financial system.

Steel Caucus Wants Action on Customs Enforcement

The American Iron and Steel Institute (AISI) applauded the efforts of the Congressional Steel Caucus, led by Chairman Tim Murphy (R-PA) and Vice Chairman Pete Visclosky (D-IN), to emphasize the importance to the steel industry of overdue legislation to address the evasion of trade remedy orders.

Free Sample Report: Our Annual Metal Buying Outlook

40 Members of the Steel Caucus recently sent a letter to the leaders of the House Ways and Means Committee, which has jurisdiction over trade issues, urging that the committee work with its Senate counterparts and make finalizing the Trade Facilitation and Trade Enforcement Act (H.R.644) a priority as Congress returns from the Thanksgiving holiday break.

The bill, also known as the Customs Reauthorization, should be the vehicle to pass the ENFORCE Act — which would ensure that current trade remedy laws are being fully enforced and that anti-dumping and countervailing duties are being accurately assessed and collected at the border, the Steel Caucus said. The House and Senate each passed different versions of the customs bill this summer; however, a conference to resolve differences in the legislation has been stalled.

Free Download: The November MMI Report

Rep. Murphy said, “We achieved historic success in the House with trade remedy language earlier this year, but we can’t rest on our laurels. The House Steel Caucus is working to ensure strong enforcement standards remain in the final conference report.”

A full copy of the letter to the Ways and Means committee can be found here.

This Thanksgiving Holiday, all of us here at MetalMiner would like to share what we’re thankful for this year.

(Mostly) Transparent Markets for the Metals You Buy

While it’s been a great year for buyers, with low commodity prices across the board, we are constantly reminded that prices are only as correct as the information behind them.

Free Sample Report: Our Annual Metal Buying Outlook

This is the first full year for the new LBMA gold and silver prices. More open and transparent processes for precious metal prices can only help purchasers in the long run by giving them more information about what goes into the prices they are quoted. We are thankful for market transparency in all its forms.

Happy Thanksgiving from MetalMiner!

Happy Thanksgiving from everyone here at MetalMiner!

That’s why our own MetalMiner IndX is updated daily with over 600 price points from domestic and multiple international markets. We’re always happy to add more open and transparent price points. Read more

A quiet revolution is going on in India’s defense sector.

Free Sample Report: Our Annual Metal Buying Outlook

It is set to give an impetus to steel, aluminum and composite materials demand in the country. Recently, US aircraft manufacturer Boeing Co. and India’s Tata Advanced Systems Ltd. (TASL) announced a joint venture to manufacture aerostructures for aircraft beginning with the reputed AH-64 Apache fighter helicopter.

AH-64 Apache

Make in India, in this case, means making Apache helicopters there thanks to a joint venture with Boeing. Source: Adobe Stock / VanderWolf Images

The joint venture, according to media reports, would also then compete for additional manufacturing work packages across Boeing platforms, both commercial and defense.

Burgeoning Private Defense Industry

Currently, as many as 14 Tata companies are providing support to India’s defense and aerospace sector. In addition to TASL. The list also includes Tata Advanced Materials, a company that has delivered composite panels for cabinets and auxiliary power unit door fairings for the P-8I long-range maritime surveillance and anti-submarine warfare aircraft.

Another company, TAL Manufacturing Solutions, has manufactured floor beams out of composite materials for the Boeing 787-9, and provided ground support equipment for the C-17 Globemaster III strategic airlifter. Read more

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Source: US Energy Information Administration depiction of Federal Highway Administration data.

Earlier this year, the federal Highway Trust Fund (HTF) reached its lowest level in decades, ending July at $6.1 billion dollars. A congressionally approved transfer of more than $8 billion boosted the fund’s balance to end the fiscal year (September 30) at $12 billion, but that is still the second-lowest year-end level since 1984. As we speak, the House and Senate are working on a six-year funding extension for it. The fund pays for all federal highway projects and another (mass transit above) pays for all federal mass transit projects. Both are suffering as the gas tax that funds them has not been raised since 1993 and most cars are much more fuel efficient these days.