Articles in Category: Sourcing Strategies

Nickel prices reached a 10-month low this week due in part to concern over demand from China, a top consumer of the metal.

According to a report from Reuters, these concerns were supported by Chinese trade data, indicating falling imports on the alloying material used to make stainless steel.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

Nickel traded on the London Metal Exchange ended Wednesday at $9,225 per metric ton, its lowest mark since June of last year.

John Meyer, SP Angel analyst, told the news source he anticipates nickel to be supported by concern over supplies of ore from the Philippines, which recently announced the ordered closure of more than half its mines in order to protect water sources.

“There is still a lot of stock for the market to burn,” Meyer told Reuters.

Nickel Trailing Other Industrial Metals

Our own Raul de Frutos wrote earlier this month of the downward pressure seen on nickel prices during Q1, which is in stark contrast to other industrial metals that have rallied during that same time.

Wrote de Frutos: “Nickel prices are struggling to make headway this year. Nickel’s supply narrative is rather complex and it’s exposed to significant changes depending on what policy makers in Indonesia and The Philippines do next. On the other hand, stainless buyers should continue to monitor their price risk exposure. Investors’ sentiment on industrial metals remains bullish and that could still trigger unexpected prices swings on the upside.”

How will nickel and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

ERP Strategic Minerals, LLC, part of the ERP Group of companies, has been selected as the stalking horse bidder by the Chapter 11 trustee for Molycorp Minerals, LLC and related entities and entered into an asset purchase agreement with Molycorp’s bankruptcy trustee to purchase substantially all the assets and the surface property rights of the company’s debtors at the  Mountain Pass Rare Earths mine in California.

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

The offering price is $1.2 million, a far cry from the $40 million offered and abruptly withdrawn earlier this year by Russian-born investor Vladimir Iorich and his Pala Invesments firm. However, ERP, as part of its offer, is also promising to shoulder up to $100 million worth of Mountain Pass’ debts and liabilities. Read more

Industrial metals have been on a tear since we called a bull market just about a year ago. However, we have recently witnessed some price weakness over the past couple of months.

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

Commodities like industrial metals are cyclical assets which tend to run in the same direction for long periods of time. The key is to recognize the peaks and valleys of the cycle to time your purchases accordingly. 

The industrial metals ETF: peak or pause? Source: MetalMiner analysis of @stockcharts.com data.

The ongoing bull market in industrial metals has run for over a year and while some metals are experiencing some setbacks, it’s a good time to bring up the question: Are we nearing a peak or this is just a pause before prices break on the upside?

To answer this question, let’s look at what the main macro drivers are telling us:

China: Strong Indicators

As we all know, China is the world’s largest producer and consumer of industrial metals. Any changes on China’s supply and demand equation can have a huge impact on the price of metals. The performance of Chinese stock markets are a great gauge of investors’ sentiment on China’s economy. Since China became a major economy, we’ve seen a strong correlation between Chinese markets and metal prices.

Chinese stock market etf trading near highs. Source: MetalMiner analysis of @stockcharts.com data.

Price momentum in Chinese markets has indeed picked up this year, tradin near a two year-high. The latest economic indicators continue to increase investors’ confidence in China.

The country reported growth of 6.9% in the first quarter, its fastest pace since the third quarter of 2015, fueled by credit and infrastructure spending as well as a stubbornly booming property market. Growth prospects in the country also seem to be improving thanks to easing trade tensions with the U.S. In China, investment in buildings, factories and other fixed assets grew 9.2% in the first quarter, while construction starts rose 11.6% during the same period. If that’s not enough, in April, China’s government announced plans to build a new megacity from scratch. The construction will require massive amounts of steel and industrial metals.

This growth translates into solid demand for industrial metals at the same time as China applies stricter anti-pollution rules and supply-side reforms designed to cut capacity in energy-intensive sectors like steel and aluminum. Overall, while we continue to see strength in Chinese markets, we are not ready to call peak in this industrial metals bull market.

US Dollar Falls to 5-Month Low

Base metals are commodities and, as such, move in opposite directions to the dollar. Over the past 20 years, every major bottom in commodities have coincided with a major peak in the U.S. dollar and vice versa. For a continuation of a bull market in industrial metals we should see weakness in the dollar. This year we have seen that.

The U.S. dollar index falls to a 5-month-low. Source: MetalMiner analysis of @stockcharts.com data.

On Monday, the dollar fell to a five-month low due to a surge in the euro after the first round of the French presidential election eased concerns about the future of the European currency. The election outcome could continue to support the euro as markets price out the risk of a far-right victory.

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

If centrist candidate Emmanuel Macron gets elected in the final round (May 7), markets might start to focus on the positive macro picture of the euro-area and its higher growth relative to the U.S. That could potentially devalue the dollar against the euro, a bullish development for industrial metal prices.

What This Means For Metal Buyers

Industrial buyers need to watch closely for signs of a market top. For now, the recent price weakness in industrial metals seems normal in the context of a bull market and key indicators such as China and the dollar favor a continuation of this uptrend. Industrial buyers should continue to manage their commodity price risk exposure until we see real signs of a market peak.

The MetalMiner analyst team alerted subscribers and trialers last week to significant movement on the zinc front. Prices for the non-ferrous metal have pulled back over the past several weeks, and are now trading near key support levels.

Wrote our own Raul de Frutos: “The price weakness seems to come from longs exiting their positions rather than shorts coming to the market. This suggests that sentiment hasn’t shifted to bearish for now. This could be a good opportunity to time purchases (3-5 months’ worth of demand) while prices trade near $2,500/mt.”

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

While many may panic and see this price decline as the end of zinc’s bull run, de Frutos sees this movement as an ideal opportunity to make purchases at an attractive price.

de Frutos added: “After doubling in price since the beginning of 2016, prices are now struggling in the $3,000 per metric ton level. However, the price weakness seems to come from long position buyers exiting those positions rather than shorts coming to the market. This suggests that sentiment hasn’t shifted to bearish for now. At the same time, we see strong support near $2,500/mt, which could provide a good opportunity to time purchases.”

How will zinc and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Lead ore. Source: Adobestock.

Lead prices, along with tin, lost some ground on the non-ferrous metals market on April 18, due in part to stockists selling as the result of subdued demand in the user industries.

According to a report from the Business Standard, lead fell slightly lower than tin with copper dropping by an even smaller margin.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

Elsewhere in the realm of non-ferrous metals, lead’s sister metal zinc has seen its prices fall off sharply over the past several weeks.

Our own Raul de Frutos warns that now is the time to buy, although it’s important not to panic and view this as the end of zinc’s bull run. In fact, this is nothing more than a great opportunity to purchase the metal at an attractive price.

de Frutos wrote: “After doubling in price since the beginning of 2016, prices are now struggling in the $3,000 per metric ton level. However, the price weakness seems to come from long position buyers exiting those positions rather than shorts coming to the market. This suggests that sentiment hasn’t shifted to bearish for now. At the same time, we see strong support near $2,500/mt, which could provide a good opportunity to time purchases.”

Lead Price Outlook for 2017

How will lead and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Lithium Australia is making inroads to Germany for a joint venture with Deutsche Rohstoff, parent company of Tin International, in an attempt to uncover lithium in the region for production purposes.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

According to a recent report from Business News, the key piece in the venture is Tin International’s Sadisdorf Tin deposit, a globally renowned Altenberg mine, which has been dormant since 1991 following 500 years of production. The mine is believed to contain a lithium-rich mica that is suited for Lithium Australia’s proprietary extraction means.

Adrian Griffin, managing director at Lithium Australia said, “The joint venture with Tin International provides Lithium Australia with a low-cost entry into an established JORC resource, albeit originally established for tin.”

“There is little doubt that a substantial Lithium inventory also exists and the focus of the joint venture is to fast-rack the project to feasibility,” he added. “The experience provided by Tin International will be a key element in expediting the evaluation process and we are pleased to have them as a partner.”

Your Tin Price Outlook for 2017

How will tin and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Zinc prices have fallen sharply over the past two weeks.

Two-Month Trial: Metal Buying Outlook

While others panic and see this decline as the end of zinc’s bull run, I see this price pullback as a great opportunity to purchase the metal at a good price.

The 3-month LME zinc price. Source: MetalMiner analysis of LME data.

After doubling in price since the beginning of 2016, prices are now struggling in the $3,000 per metric ton level. However, the price weakness seems to come from long position buyers exiting those positions rather than shorts coming to the market. This suggests that sentiment hasn’t shifted to bearish for now. At the same time, we see strong support near $2,500/mt, which could provide a good opportunity to time purchases.

Short-Term Resilient Supply but What About Long-term?

The recent price weakness can be attributed to fears that high prices could trigger more mine supply to come online in China. Refined zinc supply remains resilient in the country, where refined production rose by 4.4% year-on-year in the first two months of 2017. However, they might prove less resilient in the coming months after some of China’s largest zinc smelters jointly announced they will curtail roughly 540,000 mt of annualized capacity over an unspecified period of time. The announcement comes after China’s largest zinc smelter, Zhuzhou, started an indefinite maintenance period for 100,000 mt of smelting capacity earlier in March.

In addition, the second-largest zinc plant in North America has been running at a 50% of normal operating levels since a strike began on February 12. Typical annual zinc production at the plant is 270,000-275,000 mt a year.

China’s Demand Still Strong

Other analysts might be attributing the recent price weakness to slowing Chinese demand. That really hasn’t been the case. China reported growth of 6.9% in the first quarter, its fastest pace since the third quarter of 2015, fueled by credit and infrastructure spending as well as a stubbornly booming property market. The pace accelerated from the 6.8% expansion in the previous quarter and puts China well ahead of its annual target of about 6.5% growth. Growth prospects in the country seem to be improving thanks to easing trade tensions with the U.S.

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

Construction and infrastructure make up for more than 60% of zinc’s demand. In China, investment in buildings, factories and other fixed assets grew 9.2% in the first quarter, while construction starts rose 11.6% during the same period. If that’s not enough, in April, China’s government announced plans to build a new megacity from scratch. The construction will require massive amounts of steel and industrial metals.

What This Means For Metal Buyers

Despite recent price weakness, zinc’s fundamentals remain strong. It seems way too early to call an end of zinc’s bull run. This month buyers might find a good opportunity to purchase zinc. You can check out our monthly metal buying outlook for monthly strategies on how to time your purchases.

Set of copper pipes of different diameter lying in one heap

The copper industry is still reeling from its crisis of plummeting prices, but hope is on the horizon and a recovery is underway albeit a gradual one.

According to a recent report from Reuters, falling prices led to a reduction in output, but industry executives announced this week in a meeting in Chile, a top producer nation of the metal, that any recovery will be a slow one.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

“The market seems to have left behind its worst moment, although it’s very premature to anticipate a new cycle of high prices,” Chilean Mining Minister Aurora Williams told the conference, according to Reuters.

Arnaud Soirat, copper and diamonds unit chief at Rio Tinto added that copper prices could receive support from external factors, including pending mine closures and ore grade decline.

“Copper’s long-term fundamentals are quite positive, and we expect to see further demand growth from emerging markets,” he told Reuters, forecasting a small deficit this year.

Copper Prices on Upward Trajectory?

Reuters also reported that copper consultancy CRU is projecting copper prices to trend upward over the next 3-4 years.

Said Vanessa Davidson, director of copper research: “We expect pressure on costs to continue…but we see copper prices rising faster than operating costs, ensuring that profit margins increase.”

How will copper and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

This is the final of a three-part series on MetalMiner Benchmark. Here’s part one and part two if you missed them.

We recently launched MetalMiner Benchmark. Source: MetalMiner.

One question we often field from readers is this one: “how are other companies buying their X and how well are we buying X?” We have previously written that many buying organizations fall into one of several different “buy” scenarios that include the following:

  1. The pure spot buyer (e.g. otherwise known as 3 bids in a box): Here, the buying organization goes out to market with a specific requirement, obtains three bids and typically places the award with the most competitive supplier who can meet delivery and quality requirements.
  2. The contract buyer: Prefers nearly the opposite type arrangement. He or she likes to “lock in” all or close to all known requirements or use some formula based on 80% of last year’s demand. The contract buyer often uses a price contracting mechanism known as an index whereby the price adjusts quarterly or monthly to the index depending on the agreed-upon arrangement.
  3. The hybrid buyer: This buyer is more strategic in that he/she buys both on the spot market and also contracts for forward buys or hedges when prices warrant that action.

Pros and cons exist for each scenario. Often times, the contract buyer in scenario two actually looks more like the spot buyer in scenario one because when a buying organization uses an index like CRU Group‘s, they do, in fact, pay the market price. They don’t actually pay less than the market or avoid a cost run-up if prices rise. In that sense, the scenario two buyer is actually a spot buyer — ultimately paying the market price.

We’d argue there are tools today that allow the buying organization to take their metals purchasing to the next level. Innovative practices such as benchmarking can actually allow the buying organization to reduce its average or budgeted purchase price. Let’s see how.

There are a number of ways to this. We have identified a few below:

  1. By benchmarking your company’s current monthly metal spend, and by doing so regularly, buying organizations can walk into a supplier negotiation armed with current market price data and knowledge of how well the company buys vis-à-vis the market. Access to superior metal price intelligence gives the buying organization a leg up in negotiations and the ability to lower costs.
  2. By pairing the benchmark report with forecasting, buying organizations can better time contract purchases both to avoid significant price increases as well as to “float” when prices are dropping. In this way, the buying organization can apply a more strategic hybrid approach to metals purchasing thereby lowering average costs.
  3. Think of benchmarking as laser surgery. Buying organizations now have the means of pinpointing specific SKU-level opportunity areas while leaving other areas untouched.
  4. Stop wasting time on metal sourcing projects that have little to no ROI. Conversely, identify high-ROI metal sourcing projects. Educate your executive team with where and how the procurement organization plans on creating value within some of the largest metals purchase areas.
  5. Conduct alternative supplier identification on the fly by seeing alternative suppliers within your geography for the form/alloy/grade/size you buy. By conducting these types of analyses quickly and efficiently the long cycle time of implementing savings can be streamlined and shortened.

Try Benchmarking for free with self-service!

Bonus benefit: improve your ISO certification scores by using benchmarking, which enables a fact-based approach to decision-making, a key requirement of certification.

The most innovative metal buying organizations will become the early adopters of this type of benchmarking capability. Just as Progressive Insurance and Kelley Blue Book created market access to greater pricing visibility, metal price transparency appears within reach. This innovation should significantly improve metal buying strategies.

This is the second of a three-part series on MetalMiner Benchmark. Here’s part one if you missed it.

If data is the new natural resource in business, then when examining the landscape of third-party metal price tools, indexes and services, it’s safe to say that most of them fall into one of three categories:

  1. They report out the exchange-traded metal (meaning the metal that is traded on a formal exchange, typically a raw material form of the metal)
  2. Some report alloying elements and minor metals — important for mills and producers but less relevant to OEMs and most metal buying organizations
  3. They report out only a parameter or two such as alloy and form, e.g. cold-rolled coil (and typically a geography) but don’t get more specific than that

Our own MetalMiner IndX(SM), which we are no longer actively marketing, reports out most of the above and in some cases, by multiple geographies. Helpful? Sure, but limited in a number of key respects.

Limitations of Current Metal Price Indexes

Based on our own analysis and analyses conducted by our readers and shared with us, the three primary limitations of current metal price indexes (including our own) are as follows:

  1. They aren’t correlated enough with the metal prices buying organizations actually pay. The London Metal Exchange three-month aluminum price plus the Midwest premium certainly goes a long way in helping buying organizations understand the general aluminum price trend, but that still leaves some portion of the price a company actually pays out of the equation.

For example, the 3003 H14 .020 x 48” x 120” sheet that a company actually buys from a service center includes more than what current indexes supply:

  • LME three-month aluminum price + MW premium + Conversion Premium + margin + delivery to the customer.

CRU Group publishes a weekly CRC, HRC, HDG and Plate price for several geographies in the midwest but that CRC price is still not the same price as the price for 100,000 pounds of 1011 12 gauge x 48” coil.

  1. In some cases, other metal price indexes have the form, alloy and grade-level data (see stainless prices from MetalBulletin). American Metal Market also publishes form/alloy/grade data but it may not include specific sizes, quantity breaks or price differences based on those parameters. In addition, some of these may only be updated monthly.
  1. Current price indexes are all one-sided — They go from the publication out to the reader/user. There is no two-way method of giving your data and getting something back that allows you to compare your purchase price against others in your industry.

Benchmarking is always free with self-service!

Why Form/Alloy/Grade/Size Matter

By providing a means to identify the market price at the granular level of form/alloy/grade/size, buying organizations can now effectively compare the actual industrial prices paid against peers as well as the market as a whole. This capability also allows buying organizations to identify alternative suppliers, pinpoint specific SKUs and areas of opportunity, and strengthen existing supplier relationships.

It’s clear that, indeed, “data is the “new” natural resource in business. In our next post we’ll cover how buying organizations can use these types of resources to lower their average cost.

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