Articles in Category: Sourcing Strategies
Source: Adobe Stock/ epitavi

Source: Adobe Stock/ epitavi

Copper prices rallied this week as a weaker dollar influenced the London Metal Exchange and futures for the metal surged to a three-day high on Tuesday.

According to a report from The Wall Street Journal, three-month copper on the LME was up 0.8% in yesterday’s European trade. Copper prices increased 7% from the start of 2016 to mid-March due in part to seasonal demand, but have since died down over economic concern in top consumer China. Before this week, we were back where we were in early January as it relates to 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!

“On balance, we would not be surprised to see prices edge lower in the short term, but we would expect good dip buying to provide support and eventually lead prices higher,” William Adams, head of research at Fastmarkets, told the WSJ.

Rising oil prices also contributed to this week’s rally in copper prices. It’s important to note that copper and oil are often grouped together as part of commodities in a fund, so significant increases in oil value usually correlate to the same for copper.

“Copper prices got some relief after a continued rally in crude oil,” confirmed ANZ Research, to the WSJ.

Previously Suffering Copper

This latest development in copper prices mid-week comes on the heels of recent analysis from our own Raul de Frutos that found the gains made in Q1 have already begun to dwindle under a new “bear attack.”

“To believe this bear market is over, we would need to see these metals making significant upside moves,” de Frutos said. “So far we are not seeing that. The latest decline in copper prices supports this view.”

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

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

Aluminum prices dropped to a seven-day low this week after a brief rally last week, due in part to expectations that Chinese smelters are jump-starting output, which would add to the abundant global supply that has put downward pressure on this market segment.

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!

“Following a surprising first quarter jump in aluminum prices it appears Chinese producers are restarting their production to take advantage of these higher prices,” wrote Donald Levit of Economic Calendar. “If Chinese producers production increases materialize and add to the market supply, we can expect to see a correction in aluminum prices.”

Aluminum has confounded us and other analysts as, up until this week, it had led a rally in industrial metal prices. However, it lacked the fundamental drivers for such a rally despite the production cuts and improved Chinese economic data.

Says our own Raul de Frutos: “The long-term outlook for aluminum is still poor. Aluminum will likely need a bull commodity market to make a substantial rally. Prices in the short term could rise, however, following the recent strength in the base metal sector and the fact that bargain hunters might want to lift prices after the slump seen last 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.

 

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)

Screen Shot 2016-04-06 at 9.37.41 AMPlate prices breached short-term resistance this week.

Our industrial buying strategy remains the same, though, as we recommended buying forward three to five months worth of demand.

For the longer term trends we see in the metals you source? You’ll have to download our brand new Q2 update to the 2016 annual metals outlook. This report is available to you, compliments of MetalMiner™, and provides organizations with a more complete understanding of where prices are likely to go for aluminum, copper, tin, nickel, lead, zinc and steel (HRC, CRC, HDG, plate) as the year progresses.

Claim your copy today!

 

 

Our Construction MMI continued to rise out of the trough it spent much of 2015 in last month, consolidating its March gains and even gaining 1.6% more.

Free Sample Report: Our April Metal Buying Outlook

The cautious optimism we’ve been seeing for the last few months is showing signs that it might turn into something more. The Census Bureau reported that construction spending increased 0.5% between January and February and was up 10.3% year-over-year.

Healthy Increases Over 2015

Non-residential construction declined 1.4%, but was up 10.1% from last year’s level. The agency said eight of the 16 non-residential sectors saw an increase in February. Overall, construction spending actually slipped .5% from January to February, but the entire year was still positive compared to last year.

Construction_Chart_April_2016_FNL

It’s not just the U.S. market, either. The world’s largest consumer of construction materials, China, is finally seeing some returns from stimulus efforts. The central government there loosened policies, prompting a home sales rebound in 2015 and the looser lending standards are leading to more home buying and even some commercial construction gains.

Chinese Housing Stimulus

China’s smaller cities are not seeing the rebound that the larger metropolises are and there is concern that a dangerous property bubble is forming in the larger cities such as Beijing, Shanghai, Shenzhen and Guangzhou, which have recorded sharp gains in housing prices since the Lunar New Year holiday in February. Still, the purpose of stimulus is to stimulate and China seems to have finally found a way to increase construction and buying.

Free Download: The March 2016 MMI Report

Back, here in the U.S., steel mills are cautiously (there’s that word again) raising prices of rebar and other construction materials as we enter the traditional building season in the Midwest and Northeast. All of the macro factors are there to sustain the recent price increases we’ve seen in construction materials — a weakening U.S. dollar, a general commodities rally led by oil and strengthening demand in large markets — but we continue to advise buyers to be prudent and pay attention to the market before committing to large volumes. Nothing has stuck just yet.

To see all construction prices, sign up for membership!

For full access to this MetalMiner membership content:
Log In |

oracle-webinar-banner-ctaOur sister site Spend Matters is hosting a webinar today that we’re sure will fit right into our audience’s wheelhouse. The links of the supplier management lifecycle chain — sourcing, qualification and contracting — typically exist in their own private silos. Spend Matters and Oracle will discuss how to break these individual components from out of their silos and align them to create significant value for your organization. They will share best practices and tried and true proven strategies for you to implement. Connecting the Dots of Risk, Return and Compliance in Strategic Procurement will kick off at 12 p.m. CDT.

Register here!

Tin cansTin prices are on the rise with demand remaining strong, yet a prolonged mining slump and other factors are contributing to tightened supply.

A metal used as solder for electrical circuits, tin is very much in need by an assortment of manufacturers. Yet major exporters, Indonesia and Myanmar, are shipping much less of it in the face of a multiyear slump that investment in mines and smelters sapped.

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!

Tin has rebounded from January when its prices reached their lowest point since 2009. Supplies this year will be the smallest compared to demand in 20 years.

According to a report from The Sale Lake Tribune, Phoenixx International Resources LP, a metals wholesaler in Pittsburgh, is seeing its customers lock in tin prices two months prior to delivery rather than risk being gouged further down the road. This is the first time that’s happened in more than two years.

“People are jumping in to grab some, saying they think it’s a good price,” said Brian Helsel, Phoenixx president, who has more than two decades’ tin trading experience. “Based on the fundamentals, I think the bottom of the tin price should be now in.”

Tin Performing Well

Our own Raul de Frutos wrote that zinc and tin are performing the best among industrial metals with aluminum, copper and nickel lagging behind substantially. “We would like to see these metals leading the broad rally but they are not. While these metals haven’t shown any strength, the broad rally in industrial metals, itself, is prone to fall short,” he said.

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.

The Occupational Safety and Health Administration announced last week its final rule to improve protections for workers exposed to respirable silica dust.

Free Download: The March 2016 MMI Report

OSHA says the rule will help prevent lung cancer, silicosis, chronic obstructive pulmonary disease, and kidney disease in workers by limiting their exposure to crystalline silica, which can cause all of the above diseases and disorders when inhaled. The final rule is written as two standards, one for construction and one for general industry and maritime.

This pile of white silica sand is now being more tightly regulated by OSHA. Source: Adobe Stock/Coprid.

This pile of white silica sand is now being more tightly regulated by OSHA. Source: Adobe Stock/Coprid.

Construction companies have until June 23, 2017 to comply with most of the new requirements, such as:

  • Reducing the permissible exposure limit for crystalline silica to 50 micrograms per cubic meter of air, averaged over an eight-hour shift.
  • Mandating employers to use engineering controls (such as water or ventilation) and provide respiratory protection when controls are not able to limit exposures to the permissible level.
  • Limiting access to high exposure areas .
    Training workers to recognize exposures.
  • Provide medical exams to highly exposed workers.
  • OSHA says the new regulations, which replace ones established in 1971, provide greater certainty and ease of compliance to construction employers — including many small employers — by including a table of specified controls they can follow to be in compliance without having to monitor exposures.

Free Sample Report: Our March Metal Buying Outlook

As we’ve mentioned before, the new rules are the culmination of 45 years of debate and consideration of a new silica rule. Regulators have sought to strengthen the 1971 since its inception as silica, in its natural sand state, is pretty much everywhere on construction sites.

With the stock market in a funk and property prices rising fast in China, some Chinese investors are turning to iron ore futures trading to make a fast profit.

Free Download: The March 2016 MMI Report

The chart below, from Westpac, shows the daily traded volume of Chinese iron ore futures on the Dalian Commodities Exchange back to when the market first came into existence in late 2013.

Westpac_Dalian_iron_ore_futures-550_032816

Day traders have reached a new speculative higher on Dalian iron ore. Source: Westpac.

It’s not the first time the Chinese market was swayed more by sentiment than reality.

What’s Really Going On?

Monitoring daily price movements in the domestic Chinese market (sign up for membership in our IndX if you would like to receive daily prices) gives MetalMiner the opportunity to keep a finger on the pulse of the country’s metals market, so when our editor, Jeff Yoders, remarked on the fluctuating daily prices for iron ore and coal on the Dalian exchange last week, we thought some of our readers may likewise by intrigued to know what is going on. Read more

Source: Adobe Stock/prima91

Source: Adobe Stock/prima91

Rising steel prices have impacted spot iron ore prices, which also rose, for the fourth straight session this past week.

According to a report from Business Insider, the iron ore gains came with another boost in Chinese steel prices and can be attributed to announcements made at the International Horticultural Expo, adding further weight to the argument that the government-mandated slowdown in steel production in China has impacted steel prices and, as a result, iron ore 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!

It is important to note China’s unsold home inventory of 52 months given the current pace of sales and that the domestic real estate industry’s improvement may not last very long as a result, particularly as it relates to construction.

Steel Prices on the Rise Since February

According to a recent report from our own Raul de Frutos, steel prices have been on the rise since February and, at the same time, a broad recovery has also been underway among industrial metals due, in part, to a weaker dollar and rising oil prices.

“Steel prices are also getting a boost thanks to new anti-dumping determinations, a decline in US imports and a surge in iron ore prices. It’s pretty normal to see sharp rallies in bear markets only to then see prices fall again,” de Frutos said. “Indeed, we just saw that pattern in steel prices last year. It’s yet not clear how long this rally will last, but current macro-conditions will need to improve to make us think the rally is finally the one ending this bear market.”

You can find a more in-depth steel 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.