Sourcing Strategies

A quiet revolution is going on in the US power generation market, and it may be giving a lesson for those countries dithering over whether to allow hydraulic fracturing (fracking) of oil and natural gas deposits identified but not yet proven.

Free Download: July Metal Price Forecast

According to the FT, April was the first month in US history that gas-fired electricity generation surpassed coal-fired generation, (although it came close in 2012 when gas prices were also very weak). By comparison, in 2010 coal provided 45% of US power. In April of this year 31% of US electricity was generated by natural gas compared to 30% for coal, and the trend continues.

Watts Up

In gigawatt terms, wind power is growing even faster than natural gas, flattening the latter in the league tables. US coal capacity dropped by about 3.3 GW during 2014, and the US Energy Information Association predicts it will shrink by a further 12.9 GW this year, while wind power capacity rose by 9.8 GW and gas by 4.3 GW.

Source FT

Source: Financial Times

The reasons are more complex than simply low natural gas prices, although that, undoubtedly, is a major factor. The Environmental Protection Agency’s failed attempt to force environmental compliance by the back door this year encouraged some coal-fired utilities to see the writing on the wall and either mothball plants or invest in new technology to accommodate the mercury emission and other pollution targets, raising costs.

Brett Blankenship of Wood Mackenzie is quoted by the FT as saying, “low gas prices mean coal plants are running less, and when they run their margins are typically compressed. So companies find it difficult to make the investments needed to comply with regulations and keep those plants running.”

The Imitation/Substitution Game

It’s a vicious downward spiral in the face of lower-priced and less-polluting competitor fuels. Although natural gas makes a better swing fuel source to balance wind and solar renewables variability, not all utilities are blessed with an abundance of such spare generating capacity so they rely on their coal power plants to step in at times of peak demand. Unfortunately, running a coal plant at anything other than full or near-full load on a continuous basis brings per-gigawatt operating costs up AND per-gigawatt emissions of pollutants.

Not surprisingly, coal producers share prices have fared even worse than shale gas companies. Peabody Energy’s share price, the largest US coal producer, has fallen 98% since April 2011, while those of Arch Coal have dropped 99.2% and of Alpha Natural Resources by 99.6%, while their debt is so devalued it is yielding 17.9% for Peabody suggesting investors are expecting default.

With natural gas prices set to stay low for some years to come and renewable costs falling steadily the writing is on the wall for all but the latest and most efficient coal-powered electricity production. At least the environmental lobby will be pleased and the EPA may have achieved much of what it set out to do, Supreme Court slap down or not.

This September: SMU Steel Summit 2015

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July 2015 Monthly Metal Buying Outlook copy

Pre-order August Metal Buying Outlook report here!

For the past three months, we’ve delivered complimentary Monthly Metal Buying Outlook reports as you formulated your 30-day strategy for sourcing aluminum, copper, nickel, lead, zinc, tin and steel (HRC, CRC, HDG, Plate). We received a ton of feedback based on these reports (overwhelmingly positive) and our proud to announce the commercial product launch beginning with the August Metal Buying Outlook report!

For $899/year, you can subscribe to receive 12 monthly reports, compiling all the fundamental information you need in a single, easy-to-read executive overview complete with technical factors affecting the price of each metal and specific levels to watch and strategies to employ.

We’re confident this is THE report for the North American Manufacturer: small-, mid-, or large-sized.

Subscribe today for your August Metal Price Forecast guide!

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Tin Drivers:

July 2015 Monthly Metal Buying Outlook copy

Want a short-term buying strategy for tin? Check out our complimentary July Metal Buying Outlook report!

1. Dollar to Euro exchange rate

2. Indonesian export quantities

3. Chinese tin ore imports

4. Global Production

Market Commentary

Tin has not had a good year. Prices have fallen 24% year-to-date after falling 15% in 2014. All base metals have fallen this year (and continue to fall) but at least a couple have attempted to show some price strength. Tin has been unable to rally at all for the past 18 months. A sideways market for tin would be a big improvement.

Moreover, the Indonesian tin export restrictions have essentially backfired. The limit of 4,500 metric tons per month, set to go into effect in April never happened. In fact, according to Indonesia’s Ministry of Trade, the country actually exported close to 6,300 metric tons in May.

Indonesian producers expected prices to rebound to $20,000 in the second half of the year against production cut backs. That scenario seems unlikely as tin is trading closer to $14,000/mt this month, below producers’ operating costs of more than $16,000/mt.

The Outlook

Three-month tin fell in June, closing at $13,880/mt. Prices continue to free-fall and tin is now at its lowest level in 6 years. Tin is not the only metal at a 6-year low – this is not a coincidence in bearish markets. Tin however, is the worst performer among industrial metals. The long-term outlook remains bearish until we see signs of an upturn.

What Should My Industrial Buying Strategy Be?

This tin price forecast was excerpted from our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds, consult the July 2015 report!

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Screen Shot 2015-07-13 at 11.23.58 AMTake a peak behind the curtain at MetalMiner™ and see what goes into developing our Monthly Metal Buying Outlook! The webinar, PREVIEW: MetalMiner™ Price Forecasts for August will take place Thursday, July 30 at 10 a.m. CDT.

Can’t make it live? Register anyway and we’ll send you a copy of the slides and recording of the webinar.

Speakers to include:

Lisa Reisman, CEO, Azul Partners and executive editor, MetalMiner. Lisa has more than two decades’ experience in management consulting and direct materials sourcing. She’s worked at Andersen and Deloitte Consulting, and even owned and operated her own aluminum trading company.

John Conolly, managing director, Azul Partners. John has more than 20 years of experience in listed derivatives, commodities trading and client advisement on commercial risks. His most recent experience involved developing an industry-leading market commentary product as director of Product Marketing at CME Group.

Register today!

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I recently read in USA Today about a theft in Kentucky in which the most valuable piece of loot was a stainless steel barrel full of 17-year-old Eagle Rare bourbon, valued around $11,000.

stainlessbareel

A humble stainless barrel containing $11,000 in aged bourbon was recently stolen. Photo: Gregory A. Hall, The (Louisville, Ky.) Courier-Journal)

In my time in the stainless industry I have heard of stainless steel being used in wine tanks and in the tequila-making process, but I was surprised to hear that stainless barrels are now being used in the making of bourbon.

Free Download: July Metal Price Forecast

After all, it is the unused charred oak barrel that flavors bourbon as it ages.

Why Stainless?

During the traditional oak process, though, some liquid evaporates from the barrels—about 2% each year which, according to Whisky Magazine. The loss can be even greater in hotter climates such as Kentucky’s. The part lost is referred to as the “angel’s share” because it is the part of the bourbon the maker is supposedly sharing with the angels.

The theft of the stainless barrel of bourbon highlights one part of the process that many bourbon distillers would likely prefer the world not know about. The stainless barrel is used to store already aged bourbon until it needs to be bottled. Stainless steel doesn’t impact bourbon’s flavor, so the product can remain in the barrels for years until it’s ready to bottle. The longer some bourbons age, the more they can cost on the market. The use of stainless steel barrels in bourbon-making became more common in the 1990s.

The added benefit of storing bourbon in stainless rather than other oak barrels is that the distiller is not giving any more to the angels. Stainless steel barrels won’t allow our precious bourbon to evaporate. So, thank goodness for stainless steel barrels to ensure that the angels don’t overimbibe on America’s Native Spirit.

Free Download: Last Week for the June MMI Report

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Copper Market Drivers 1. Dollar to Euro exchange rate 2. China copper price (proxy for demand) 3. US capacity utilization 4. Global production 5. Refiner treatment charges 6. Chilean copper production Market Commentary China Demand is the Name of the Game China really controls the copper story. Poor demand and near-term copper supply suggest copper will […]

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Screen Shot 2015-07-08 at 10.56.39 AMOur own Lisa Reisman — CEO, Azul Partners and executive editor, MetalMiner™ — will be live and in-person at the SMU Steel Summit Conference 2015 in Atlanta this September. The Georgia International Convention Center will be packed with:

 

  • Manufacturers
  • Service centers
  • Fabricators
  • Wholesalers
  • Trading companies
  • Steel mills
  • Tool processors
  • Providers of products and services to the steel industry

If you belong in any one of those aforementioned groups then this is the event for you! Lisa will be presenting an exclusive look at our new industrial metals price forecast, and will be joined by her peers who will discuss commodities, government and trade, the manufacturing industry, the steel industry, specifically, and more.

Reserve your spot today!

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Never mind physical demand from end users, the omens for copper demand from the financial sector are arguably even worse if a recent paper covered by the Financial Times is correct.

Free Download: July Metal Price Forecast

“Carry Trade Dynamics under Capital Controls: The Case of China” by Zhang Xiao, a fixed-income analyst with BNP Paribas, and Christopher Balding, associate professor at the HSBC Business School at Peking University’s Graduate School in Shenzhen, finds strong evidence that Chinese copper stocks were being used “primarily to facilitate a carry trade under capital controls.”

A roll of copper wire

Soon, in China, this will now be just a roll of copper and no longer an investment vehicle.

It is no secret that because of higher interest rates in China, compared to the rest of the world, Chinese investors have borrowed money offshore using a letter of credit from a bank to import copper. This was among other metals used but copper was the favorite. This was the scheme: Put the metal in a warehouse, and then invest the money in higher-yielding assets like property, financial products, or invest in manufacturing facilities.

More Than Half of Copper Used for Financing

The FT reports that some Chinese executives estimate that as much as 70% of China’s imports of refined copper were used to obtain financing rather than for actual consumption.

If the research backing the report is correct, the closer alignment of Chinese interest rates to global rates will negate the demand for this form of shadow financing and naturally reduce copper demand as a result. There is already considerable evidence to suggest this is already happening.

Chinese copper imports have been falling. Chinese interest rates have been reduced four times in the last eight months with the current rate at a record low of 4.85%. With investment depressed and the Chinese stock market tanking, there seems little prospect for interest rates other than to continue to fall, don’t bet on a significant pick up in copper anytime soon.

Chile Drops the Supply Side Ball

On the supply side, high-quality copper concentrate shrank more than expected in the first half of this year due to output delays from top mining nation Chile.

This may support prices later in 2015 but, if the Chinese carry trade demand is as high as the FT suggests, then it would likely outstrip any shortage in concentrate.

Production from two of four mines in Chile that churn out clean, standard concentrate was stalled in the first half as the country was hit by floods. The world’s top mine Escondida, has not tendered surplus concentrate for months, according to Reuters.

Smelters blend clean concentrates with supply from mines that have mpurities such as arsenic, which have become more common as miners dig deeper into the earth’s crust in Chile.

Free Download:Last Week for the June MMI Report

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We recently held quite the interesting webinar: a debate between the husband-and-wife owners of MetalMiner™ and sister site Spend Matters. Lisa Reisman (executive editor of MetalMiner™) and Jason Busch (founder and group managing director of Spend Matters) conversed back and forth about the merits of sourcing on the spot market and, more specifically, best practices for buying commodities in 2015.

If you couldn’t attend the webinar then fear not, we have you covered. Available to you now, for free, is the PDF download of the PowerPoint slides used on this webinar. By reviewing them you will learn:

  • Why sourcing on the spot market is inherently risky
  • An alternative viewpoint into your direct material commodity spend
  • How to maximize value from our commonly accepted best practices presented
  • Why using indexes when sourcing commodities is often just downright awful strategy

This PDF is an absolutely essential tool to add to the belt for every purchasing organization out there. If you are buying commodities in today’s markets then this is the comprehensive document for you!

Get your copy today!

 

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The US Mint ran out of silver eagle coins again this week and half of the new nickel smelters in Indonesia won’t open this year due to low demand.

Silver Eagles Sell Out

The US Mint said on Tuesday it temporarily sold out of its popular 2015 American Eagle silver bullion coins due to a “significant” increase in demand, the latest sign that plunging prices have spurred a resurgence in retail coin and precious metal buying.

Free Download: July Metal Price Forecast

In a statement sent to its biggest US wholesalers, the mint said its facility in West Point, NY, continues to produce coins and expects to resume sales in about two weeks.

This is the second time the mint has sold out of silver coins in the past 12 months, it ran out of 2014-dated American Eagles last November. In 2013, the historic drop in precious metals prices unleashed a surge in global demand for coins, forcing the mint to ration silver coin sales for 18 months.

New Nickel Smelters Not Necessary

Nickel producers in Indonesia may only build half of the 12 new smelters anticipated this year and some may not commence production immediately due to low global prices, a senior industry official said.

Free Download: Last Week for the June MMI Report

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