Articles in Category: Sourcing Strategies

This post originally appeared on our sister site, Spend Matters. It’s being reposted here because of its high relevance to MetalMiner’s manufacturer users.

Large telecom, computer, equipment and other original equipment manufacturers use a network of both third-party resellers and distributors to sell product in multiple countries.

Source: Adobe Stock/aotearoa

Source: Adobe Stock/aotearoa

Many of these local market distributors face cash-flow issues because of lengthy domestic payment terms and limited access to credit facilities or affordable funding. Banks and other lenders can provide direct loans and credit facilities to distributors, backed by varying levels of support and involvement by the corporate OEM.

Free Download: The May 2016 MMI Report

A healthy dealer and distributor network is important for current and future sales for the OEM. According to one banker, though, a lot of distributors fall into the mid-market segment and, for them, the average cost of credit is high, and they may even find it difficult to arrange a credit line at all.

But Trade Financing Matters (another of our sister properties) sees great potential for cloud-based e-commerce platforms to leverage a seller-centric version of distributor finance in OEM dealer/vendor/distributor structures.

Click here to download your copy of the report: Distributor Finance – A New Take on an Untapped Market

In this arrangement, the OEM functions as the “middle party” working with its dealer/vendor/distributor network and its network of end buyers (or accounts) to manage invoicing, matching, price validation, dispute management, credit and collections, payments to its dealers and collecting receivables from national account customers. Third-party providers may offer risk management or logistics support to broaden such a solution. Read more

stainless-nickel-L1Nickel, along with copper, rallied over the past week due in part to relatively mild demand from the consumer industries.

According to a report from the Business Standard, traders are accounting for scattered demand from these industries leading to the rise in both nickel and copper prices.

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

In a recent report from our own Raul de Frutos, all industrial metals have enjoyed a rally-intensive 2016 with the exception of one month: January. That was when the same metals hit new lows. So what is to account for this rebound? Is it worth noting or simply a mirage?

“Some metals — such as steel, zinc and tin — have gained significantly while others such as aluminum, copper, nickel and lead haven’t made much progress yet,” de Frutos wrote. “The price rally is not really being driven by supply cuts but by a combination of a weak dollar and the sugar rush of China’s stimulus, initiated late last year. We could be witnessing the end of this five-year-long commodity bear market, however, there is something rotten about this rally.”

Raul added that China’s stock market is the most accurate barometer for its economy and, ever since 2011, its stock market along with its commodity prices, have fallen. So what could appease our worry about this particular metals rally?

De Frutos concluded: “A good start would be China’s stock market rising above April’s levels. Otherwise, metal bulls can only hope for a choppy market.”

You can find a more in-depth nickel price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

Adobe Stock/ Björn Wylezich

Adobe Stock/ Björn Wylezich

The International Lead and Zinc Study Group recently released its latest findings, which revealed world usage of refined zinc metal is projected to grow 3.5% in 2016 due mostly to a 4.5% increase from demand in China.

The Far East nation’s demand is expected to grow due to continued investment in its infrastructure. In addition, Europe is expected to remain stable in 2016 after improving 3.2% in 2015 as far as zinc usage is concerned.

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

Growth as high as 13.1% is expected in the Republic of Korea with increases also projected in India, Japan and the U.S.

As for supply? The ILZSG report states: “A sharp forecast fall in ex-China zinc mine production of 9.4% is due to a combination of mine closures and recently announced production cutbacks. Chinese output, which is reliant on production from a large number of small mines, is forecast to grow by 12.4%. Overall global zinc mine output is expected to fall by 1.4% to 13.27 million metric tons.”

Furthermore, Australia is expected to significantly reduce its production by 46% as a result of mine closures last year.

The ILZSG concluded: “Despite the fact that lower output is also expected in a number of other countries including Canada, India and Kazakhstan, current forecasts indicate that these reductions will be more than balanced by anticipated rises primarily in China, the Republic of Korea, Namibia and Norway. However, taking into account the predicted decrease in zinc mine supply it is possible that zinc metal production expectations in some countries may be subject to downward revisions later in the year.”

You can find a more in-depth zinc price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

lead-prices-L1The Standing Committee of the International Lead and Zinc Study Group held its Spring meetings last month, and revealed they anticipate global demand for refined lead metal to rise 2% in 2016.

Furthermore, increased usage in China by the automotive and telecommunications sectors could be offset by a reduction in demand in the e-bike market there, leading to slower sales growth and higher competition from battery production.

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

In Europe, demand is projected to grow 3.5% spearheaded by activity in Italy, Spain, the Czech Republic, and the U.K. This after demand fell 5.2% last year. Growth is also expected in Japan, Indonesia, India, Turkey and Thailand.

The ILZSG report stated: “An expected fall of 6.1% in ex-China production will be primarily due to reductions in Australia resulting from the closure of MMG‘s Century mine in August last year and cutbacks announced by Glencore, CBH Resources and Perilya.”

In 2015, Chinese imports of lead contained in lead concentrates reached a record 1.03 million metric tons, the ILZSG stated, and are projected to fall to just under 900,000 mt this year.

Global refined lead metal production is expected to grow 2.3% due in large part to increased output in the Republic of Korea. The ILZSG concluded: “Having taken into account all of the information recently received from its member countries, the Group anticipates that increases in refined metal supply, most notably in the Republic of Korea, will result in a global refined lead metal surplus of 76,000 mt in 2016.”

You can find a more in-depth lead price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

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.”

Construction_yoders_550_030116

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.

Two-Month Trial: Metal Buying Outlook

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.

Tin cansMalaysia Smelting Corp, which specializes in tin mining and smelting, announced its best quarterly performance in nearly two years.

Their performance was so substantial that it brought the company from red to black when compared to the previous year. Revenue improved by 7% when compared to the same period in 2015.

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

MSC claims the improved profit came, in part, due to higher sales volume of refined tin, a positive impact from foreign currency translations and a favorable valuation adjustment on tin inventory due to higher closing prices for the metal at the end of Q1 this year.

Talking about this year’s projections, MSC stated tin prices had improved to some degree, but market conditions are still a challenge with global commodity and resource sectors still unstable from the current volatile commodities market.

Stated the company: “Despite these challenges, the underlying operations of the group comprising Butterworth International Smelter and the Rahman Hydraulic Tin mine are expected to perform satisfactorily for the current financial year, but the board remains cautious that the group’s financial results will continue to be impacted by tin price and foreign exchange fluctuations.”

Speculative Metals Rally

The recent rally in metals prices has caused some analysts to claim that it’s just purely speculative. Our own Raul de Frutos has some thoughts on what they mean exactly by “speculation.”

“Speculation is the act of trading an asset, with the risk of losing part of all of the capital invested, in the expectation of a substantial gain,” de Frutos said. “For traders to trigger a price rally there must be a fundamental reason justifying that the risk of loss is more than offset by the possibility of a significant gain; otherwise, there would be very little motivation to speculate. So, in reality, every price movement, especially in commodity markets, is speculative.”

You can find a more in-depth tin price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

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.

Two-Month Trial: Metal Buying Outlook

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

Source: Adobe Stock/ epitavi

Source: Adobe Stock/ epitavi

Disappointing trade data from China caused copper futures to fall 2.2% this week, contributing to an overall downward trajectory for futures this month.

Copper’s losses this week came after China, a top consumer of the metal, announced that exports unexpectedly dropped 1.8% in April on an annualized basis while imports decreased by 10.9% year-over-year, according to a report from Economic Calendar.

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

“Adding extra impetus to Monday’s losses was a stronger greenback,” wrote strategist Donald Levit of Economic Calendar. “The U.S. dollar climbed versus its rival currencies on Monday even after Friday’s disappointing jobs report. With copper a dollar-denominated commodity, a stronger greenback makes the metal more expensive for holders of international currencies.”

Levit added that overall, the forward momentum that propelled copper and other industrial metals higher during the first quarter of the year appears to be regressing. This can be partially attributed to the conclusion of China’s seasonal copper stockpiling coupled with the belief that China stockpiled most of the metal it imported earlier this year.

Copper MMI Holds Steady

According to our own Raul de Frutos, copper prices have trended higher since they hit seven-year lows in January, but this metal still hasn’t gained as much as other base metals like zinc or tin.

“Improvements in commodity markets made copper prices stop from falling but investors are not yet excited enough to trigger a bull run in copper prices,” de Frutos wrote.

You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

Shiny aluminum ingots with a crane in the background while a plane is flying over

Now that several years have passed since Alcoa sold its stake in the Mt. Holly smelter to Century Aluminum, it’s prudent to look back at the deal and assess who really came out on the winning end.

According to a series published on Yahoo News by Mark O’Hara of Market Realist, the selling price between the two companies was not fixed at the time of sale and was dependent on Midwest aluminum prices. While the base price was $67 million, the final transaction price could fall anywhere between $55 million and $90 million.

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

Wrote O’Hara: “As aluminum prices have been on a losing streak since the deal was announced, Century Aluminum recognized $13 million as an earn-out from the transaction during 1Q16. This helped Century Aluminum post positive free cash flows in the quarter.”

While falling aluminum prices over the long term have helped Century Aluminum in this deal, the Mt. Holly plant has faced energy supply issues for the past year, offsetting the come down in price over that same time.

Still, despite the energy supply conundrum, Century Aluminum maintains the Mt. Holly smelter remains the most efficient in the United States. As far as Alcoa is concerned, its investors should be closely monitoring the company’s split as it develops this year.

You can find a more in-depth aluminum price forecast and outlook in our brand new Monthly Metal Buying Outlook report. Check it out to receive short- and long-term buying strategies with specific price thresholds.

 

Screen Shot 2016-04-06 at 9.37.41 AMApril was a huge month for steel prices. What appeared to be a rally lead by anti-dumping actions has turned into something more powerful due, in part, to a rebound in demand from China.

“It is now clear that China has unleashed a renewed government stimulus program in the form of credit expansion and infrastructure build. This could have a bullish impact on commodity prices like we saw during the 2009-10 China stimulus program,” said Lisa Reisman, executive editor, MetalMiner™. “Some suggest it (the stimulus) will be over this year because China doesn’t want to encourage another speculative property bubble. But the Chinese have a history of extending stimulus measures beyond original time frames.”

For a long-term outlook to inform your direct material sourcing strategy, claim your copy of our Annual Metals Outlook, now updated for Q2!