Articles in Category: Product Developments

As we recently reported, the West’s energy watchdog, the International Energy Agency, faces a possible legal split from its parent body, the Organization for Economic Cooperation and Development, following decades of friction and fresh disagreements over cooperation with China.

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A document seen by Reuters shows that the complexity of cooperation between China and Western organizations such as the OECD, which has a stated commitment to democracy and market economies, has created friction between the two organizations.

The IEA, whose role includes coordinated stocks releases to address global oil shortfalls, could leave the Paris-based OECD, which sent a letter to the IEA in April, proposing the split. The argument has everything to do with China and the difference between market economies and China’s planned one.

“The IEA started negotiating with China in 2016 to establish an IEA center in Beijing, without prior consultation with the OECD which, as the IEA was aware, was itself negotiating with China to create a policy center and a country office,” the document said.

Created in 1961 to stimulate economic progress and world trade, the OECD originated from the Organization for European Economic Co-operation, set up in 1948 to help administer the Marshall Plan to reconstruct Europe with U.S. financial aid.

The IEA was established in 1974 at the proposal of then U.S. Secretary of State Henry Kissinger to help industrialized nations deal with the oil crisis after the Arab embargo squeezed supplies and sent prices surging.

Since then, energy markets have changed radically. OPEC no longer has the same power and non-IEA China has overtaken the U.S. as the biggest energy user. The fight between the two organizations highlights the difficulty regulators face in attempting to work with China and account for its energy consumption using rules and regulations that were largely designed for market-based economies.

IEA Executive Director Fatih Birol made strengthening ties with emerging powers the agency’s top priority, choosing China for his first trip into the job and breaking with the practice of previous chiefs, who began their tenure by visiting an IEA country.

The OECD groups 34 of the world’s leading economies and has about 2,500 staff. The IEA has 240 employees and 29 member states, all of which are also OECD members.

Under its autonomous status, the IEA’s governing board consists of energy ministers of member countries, which contribute four fifths of its budget of around $30.74 million (27 million euros) with the rest generated from sales of publications.

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Even if OECD and IEA are able to work out their differences and continue to work together, the problem of trying to recognize China’s massive buying power while also regulating it the way that a market economy would be is one that won’t go away any time soon.

The CME Group is taking actions to more directly compete with the London Metal Exchange and China’s Ministry of Commerce has responded to tough U.S. tariffs and anti-dumping duties.

CME Group Will Take on the LME

The CME Group is talking to several warehouse companies to expand its metal storage network globally, three metal industry sources exclusively told Reuters, a move that could further challenge the London Metal Exchange‘s (LME) dominance.

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In recent years the CME, the world’s largest futures market operator, has been steadily building its storage network , partly as a result of controversy surrounding the LME warehouse system.

Chinese Ministry of Commerce Slams U.S. Steel Tariffs

U.S. efforts to protect its steel industry will not solve the sector’s fundamental problems, which stem from “past protectionist measures,” China’s Ministry of Commerce said on Saturday.

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The comments were posted on the ministry’s website following a decision on Friday by the U.S. International Trade Commission to continue probing imports of certain steel products from 12 countries, including China and Korea.

My colleagues over on Spend Matters recently penned a pair of articles on 5 Critical Supply Risk Mitigation Principles And Practices for Your Supply Chain Sourcing Process and How to Make Category Management Do Supply Chain Risk Management.

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Given today’s metals markets, we thought we’d “make it real” by providing some examples and specific strategies and tactics buying organizations may wish to consider in this quickly evolving commodities market.

Supply_risk_chart

Source: Hackett Group Key Issues Study: 2016.

By way of background, we refer to the Krajlic Matrix which plots categories against supply impact and supply complexity. So let’s take a look at a couple of metals — specifically stainless steel and steel. Read more

The Silver Institute released its “World Silver Survey 2016” Thursday, reporting both tightening supply and increaing demand for the precious/industrial metal.

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According to the report, the silver market saw record demand in 2015, with the jewelry, coin and bar, and photovoltaic sectors posting new highs, helping to boost total silver demand to 1.17 billion ounces last year. Overall silver supply to the market was lower, led by the continued weakness in silver scrap sales. Last year’s supply and demand scenario led to the third successive annual silver market deficit, reaching 129.8 million ounces, more than 60% larger than 2014 and the third largest deficit on record.

You can install PV panels on our roof, collect a tax credit and bring down your own electricity bill. A wind turbine? Not so much. Source: Adobe Stock/rob245.

More silver panels this year, but less silver per panel. Source: Adobe Stock/rob245.

“We expect the silver price to average $15.90 this year and that’s going to be defined by an overall upward trend,” said Erica Rannestad, precious metals demand senior analyst for Thomson Reuters GFMS, who contributed to the report. “We’ve seen prices reach highs last week and we expect that trajectory to continue through the 4th quarter of this year.”

Rannestad said in an interview that the bargain buying of the last two to five years, in the silver market, has largely given-way to more sophisticated investing as a weak dollar has heightened the white metal’s demand. Read more

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Oracle announced Thursday it agreed to acquire Textura, a cloud-based solution for the construction industry with end-to-end capabilities spanning from initial bid estimation and sourcing through to subcontractor management, communication and collaboration, invoicing and payment.

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Textura can not only catalog the cost of installation of this structural form, but also log its completion and pay the sub-contractor that put it in. Image: Jeff Yoders/MetalMiner.

“Textura’s mission is to bring workflow automation and transparency to complex construction projects while improving their financial performance and minimizing risks,” Textura CEO David Habiger said in a statement. Read more

Allegheny Technologies, Inc., reported in its first quarter earnings call this week that its high-performance materials and components segment sales were up. Sales were $493 million in the first quarter, up approximately 8% compared to the fourth quarter of 2015. 73% of segment sales were to the aerospace and defense market.

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Operating profit increased by nearly 40%, compared to the fourth-quarter 2015. Segment operating profit was 5.9% of sales.

New Generation of Jet Engine Parts

ATI’s product mix improved through increased sales of next-generation jet engine advanced materials. Sales of nickel-based alloys and specialty alloys increased by 8%, and sales of titanium and titanium alloys increased by 17%. Sales of ATI’s precision forgings increased 15%, driven nearly exclusively by growing demand for jet engine components and airframe forgings.

StuartsF35_500

ATI is very pleased with its sales of airframe and jet engine materials.

“Our differentiated products here include proprietary and unique alloys, as well as products that few others can make,” ATI CEO and President Richard Harshman said, “such as ATI 718+ alloy, Rene 65 alloy, ATI 720 alloy large billets, plasma arc-melted titanium alloys, powder metals, titanium aluminides, as well as hot-die forgings, isothermal forgings and titanium investment castings.”

PAM Power

ATI is currently the only qualified plasma arc melt producer of titanium alloys used for jet engine rotating parts.

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PAM is the preferred process for titanium alloys used in jet engine rotating parts for much of the industry.

“ATI has the most powerful open-die press forge in the industry, which enables fine-grained structure in complex nickel-based super alloy billet and the billetizing of powder alloys,” Harshman said. “ATI is one of only two independent and integrated qualified producers of nickel super-alloy powders and isothermal forged parts.”

Saudi Aramco released an IPO plan of sorts about how it plans to diversify from being the world’s largest energy company to being much more and the Federal Reserve, as expected, left rates unchanged.

Saudi Aramco’s New Plan

The world’s biggest energy company, Saudi Aramco, outlined financing plans on Wednesday that will support its expansion into new areas under a sweeping economic reform plan released in Riyadh this week. The reforms envisage Aramco transforming itself from an oil and gas firm into a “global industrial conglomerate” involved in many sectors and services, using its vast financial resources to create jobs and help diversify the Saudi economy beyond oil.

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The plans suggest Saudi Arabia’s state oil company, which Deputy Crown Prince Mohammed bin Salman estimated this week was worth over $2 trillion, aims to move rapidly into a new role offering diversified services such as shipbuilding and offshore rig services in the near term.

Fed, As Expected, Leaves Interest Rates Unchanged

Federal Reserve officials left interest rates unchanged and remained ambiguous about raising rates in June as mixed global economic signals and low inflation at home weighed on policy makers struggling to spark robust growth seven years after the recession’s end.

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In a statement Wednesday after a two-day meeting, the Fed stuck to its longstanding plan to move carefully on raising the benchmark federal-funds rate, which it has held between 0.25% and 0.50% since December, when it raised short-term rates after holding them near zero since 2008.

Allegheny Technologies, Inc., hosted its first quarter earnings call yesterday morning and reported higher earnings for many of the specialty metal markets it serves, while admitting it has not yet “right-sized” its flat-rolled products business. ATI booked a net loss of $101 million ($0.94 cents per share), a loss that was less than most analysts anticipated.

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Revenue for the first quarter fell 33% year-over.year to $758 million.

ATI's Brackenridge facility is the future and commodity stainless is its past. Source: ATI

ATI executives noted during yesterday’s conference call and webcast the company’s Brackenridge production facility is only open three days, with three shifts each day. ATI would like to increase production there. Source: ATI

“Our High Performance Materials and Components segment is well positioned for profitable growth over the next five years, driven primarily by strong and growing demand from commercial aerospace,” ATI CEO Richard Harshman said. “We are committed to making the tough decisions to return our flat-rolled products segment to sustained profitability. This requires the business to be repositioned and restructured and to be more focused on differentiated products that have higher technical barriers to entry and serve markets that are global with attractive long-term growth prospects.”

Aerospace Products

Harshman and ATI’s executive team reported that the commercial aerospace market, which ATI has pursued as a growth market for the last two years, was starting to show dividends.

“ATI sales to the aerospace and defense markets grew 12% in the first quarter of 2016, compared to the fourth quarter 2015,” Harshman said. “Breaking that growth rate down by specific end markets, sales to the commercial aerospace market grew approximately 20%, with jet engine sales growth of nearly 15% and airframe sales growth of nearly 30%.”

Quarterly Numbers

The overall sales total of $758 million was up 3% over the fourth quarter of 2015, even though it was down year-over-year. High-performance materials and components sales were $493 million, up 8% over Q4 2015. Flat-rolled product sales, though, totaled $265 million, down 6% over Q4 2015. Harshman and the other ATI executives blamed the long work stoppage that ATI weathered for more than 8 months and said that production would increase with United Steelworkers personnel back on the job. ATI attributed $26 million of pre-tax costs to the work stoppage and labor contract return-to-work provisions.

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ATI also booked a $9 million for severance packages from recent flat-rolled products layoffs.

The American Iron and Steel Institute praised strong statements from eight nations meeting in Brussels to deal with the steel overcapacity crisis. The U.S. Mint might stop making pennies.

Wither the Penny?

The Wall Street Journal’s Nick Timiraos reported that in a March memo to President Barack Obama, Treasury Secretary Jacob Lew said he planned to suspend production of the venerable penny.

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Pennies fall out of circulation almost immediately, forcing the U.S. Mint to continually stamp out more, and they cost almost twice as much to produce as they’re worth, according to the most recent data from the U.S. Mint.

American Steel Organizations Applaud Overcapacity Statement

The American Iron and Steel Institute today said that a joint statement by eight governments on steel overcapacity issued yesterday at a meeting of most major steel producers in Brussels is an “important demonstration that many major steel-producing nations are united in their commitment to take action to address the global steel overcapacity situation that is negatively affecting the world’s steel industry.”

The statement was issued by the U.S., Canada, the European Union, Japan, Mexico, the Republic of Korea (South Korea), Switzerland, and Turkey as a result of the Organization for Economic Cooperation and Development’s High-Level Meeting on Excess Capacity and Structural Adjustment in the Steel Sector this week.

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It follows a strongly worded statement from the Department of Commerce and U.S. Trade Representative on Monday criticizing China, and other countries, for their unwillingness to work to address the overcapacity issue while at the OECD meetings.