Articles in Category: Sourcing Strategies

California’s Mountain Pass mine, the sole significant developed source for rare earths elements in the U.S., will go on the auction block in March, according to papers filed in late January in the U.S. Bankruptcy Court in Wilmington, Del.

Two-Month Trial: Metal Buying Outlook

Up for sale is land and some equipment at the mine which cost former owner Molycorp, Inc. roughly $1 billion to develop, according to the court. Mineral rights at the site belong to an entity called Secured Natural Resources LLC, which is owned by creditors of Molycorp including JHL Capital Group LLC.

The open-pit mining operation was part of Molycorp’s plan to have both production and processing capability for rare earths, at a time when prices were high (early in this decade)… but as our Rare Earths MMI chart shows, prices have been flat for eight consecutive months now and low for much, much longer. The prices of the 2011 rare earths market, strongly affected by Chinese supply disruptions, appear to be nothing more than a distant memory at this point.

A switch in trade policy in early 2015 — prompted by losing a World Trade Organization case — ended export quotas placed on Chinese producers effectively killed any chance Molycorp had to compete based on costs of production. Molycorp’s rare earths processing business, with operations mainly in Asia, emerged from the bankruptcy as the core of a reorganized company, Neo Performance Materials, but Mountain Pass and its high cost of production were left behind in the reorganization.

According to the Wall Street Journal, a Swiss investment fund linked to Russian-born billionaire Vladimir Iorich is part of a buyout group that has made an offer to take over Mountain Pass. Pala Investments Ltd., Iorich’s investment firm, is a partner in a buyout group’s $40 million offer for the assets. Joining Pala is Novatrek Capital GmbH, a private-equity firm founded by Pala alumnus Joseph Belan, as well as Sole Source Capital of Los Angeles, according to filings with the bankruptcy court.

Two-Month Trial: Metal Buying Outlook

Efforts to sell Mountain Pass out of bankruptcy had struggled because the mine carries with it national security concerns, due to its ability to produce rare earths for high-tech military equipment, and might catch the eye of international trade regulators. The Committee on Foreign Investment in the U.S., or CFIUS, is likely to take an interest in new owners, according to courtroom discussions during the bankruptcy case, the Wall Street Journal reported. CFIUS is an interagency body tasked with reviewing transactions that could result in control of a U.S. business by a foreign person to determine if the deal would have affect the national security of the U.S.

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

China is a top producer of aluminum, and its ongoing battle against pollution could lead to production cuts and, subsequently, skyrocketing aluminum prices.

According to a recent report from Reuters, the aluminum price rally could also potentially be offset by the oversupply situation. Any kind of extreme market fluctuation would be dependent on the Chinese government following through on the shutdown of aluminum-rich provinces during the winter months.

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!

“When the government in the past tried to implement measures to control production it wasn’t very successful,” Edgardo Gelsomino, research director at consultancy Wood Mackenzie, said. “The only time production cuts really happened in China was when the economics of the smelters didn’t work.”

Aluminum Prices Begin Year on a Strong Note

Our own Raul de Frutos wrote recently on exactly how much US aluminum prices and premiums can rise in 2017. Well, they started off the year strong. “While robust demand has supported aluminum prices, investors’ eyes have recently turned to the supply side of the equation. In December, China’s share of global aluminum output was more than 56%. The giant producer’s share of supply is now facing some serious risks,” de Frutos wrote.

He concluded: “In addition to higher aluminum prices due to supply cuts, we could see higher aluminum premiums due to the ongoing trade tensions, just as we saw the spread between domestic and international steel prices widen.”

How will aluminum 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:

India is the world’s second-largest importer of gold after China.

Click Here for Current Metal Prices

India’s gold import bill was up 12% in 2015 reaching $35 billion. 2016 final numbers are expected to come in at about the same rate, although a sharp drop in demand during December — said to be due to Prime Minister Narendra Modi’s move to scrap 500- and 1,000-rupee banknotes as a “demonetization” crackdown on corruption and tax evasion — is said to have hit the largely cash-facilitated gold jewellery market hard in the short term.

Even so, Gold imports are a considerable burden on India’s balance of payments coming second only to oil in the demand it puts on India’s foreign exchange reserves. India imports 900 to 1,000 metric tons per year, but local gold output is just 2 to 3 mt per year. In the same way that the Indian government has encouraged onshore and offshore oil exploration, you would expect indigenous gold mining would be an industry the government actively encourages.

Although India has mines that go back more than 120 years, its annual gold production is miniscule. According to an article in the Hindu times that could be about to change. The Kolar gold field was forced to close in 2001 due to mounting losses at operator Bharat Gold. The state-owned company had been mining the Kolar reserves since independence in 1947 but the mines are deep — down to 3 kilometers — and Bharat was operating with outmoded technology and a large, unproductive legacy workforce. But Mineral Exploration Corp. estimates show reserves to be worth $1.17 billion in the mines, with another $880.28 million in gold-bearing deposits estimated to be left over in residual dumps from previous mining operations.

How Can India Mine More Domestic Gold?

It is debatable whether state-owned Bharat gold has the expertise to economically exploit such deep and relatively low-grade reserves, but established global miners such as Vedanta may hold more potential. In February 2016, the firm became the first private company to successfully bid for a gold mine in India — the Baghmara gold mine in Chhattisgarh — a mine with potential gold reserves of 2.7 mt of contained metal. Sure, that’s a fraction of Kolar’s 35-mt potential but a good start for a firm of Vedanta’s standing to start in India’s gold mining sector.

Two-Month Trial: Metal Buying Outlook

India is never likely to rival South Africa, Canada or Australia as a gold miner, but that’s not the point. Any contribution to the domestic market will lessen the impact gold imports have on the country’s balance of payments. With domestic reserves estimated at over 100 mt there appears to be scope, with the right state and government backing, for miners to reduce some of those imports and create domestic employment.

Our Automotive MMI took off in February, surging 12.2% along with strong gains in steel prices and all of the base metals in the automotive index saw gains in the first full month of 2017.

Hot-dipped galvanized steel was a particularly strong performer along with the catalyst metals, palladium and platinum. The tough talk about U.S. automotive production that President Donald Trump started during the campaign has only ramped up since his inauguration. Automakers could have to significantly alter their purchasing and supply chains if a border tax is enacted.

House Republican leaders have proposed what they call a “border-adjusted tax,” which would place a levy on vehicles imported into the U.S. and fully exempt those exported. Though Trump initially deemed the idea too complicated, White House Press Secretary Sean Spicer recently said it was under consideration and could help pay for a wall along the Mexico border.

An overhaul of the U.S. tax system could hand an advantage to Ford Motor Company, Honda America and General Motors, which rely the least on imported vehicles among the major automakers. The shake-up, if it is a border-adjusted tax, would clearly undermine Toyota America, which relies on shipments of RAV4 sport utility vehicles from Canada and Lexus luxury models from Japan, and deliver an even more damaging blow to companies with zero domestic production, including Mazda Motor Corp.

“The border adjustment piece of this is very intriguing for us,” Ford Chief Executive Officer Mark Fields told analysts after posting a $10.4 billion pretax profit for 2016. “The reason for that is we are the largest producer of vehicles here in the U.S. We’re a top exporter.”

About 79% of Ford’s domestic vehicle sales were built at home last year, according to researcher LMC Automotive, second only to the much smaller electric-car maker Tesla Motors. Honda ranks just behind Tesla and Ford, with 68% of its U.S. sales coming from domestic plants, followed by GM with 65%.

If the first weeks of the Trump administration are any indication, though, initial action on a tax plan could happen quickly via executive order and the lengthy process of legislation could be a post-executive order action plan.

January is typically the weakest month of the year for U.S. auto sales, and last month appeared to be no exception. Sales fell 2% to 1.1 million, according to Autodata Corp. Supply chain executives are clearly more worried about supply chains and a possible import tax this month than end-product sales.

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

plant for the production of iron and steel

Among President Donald Trump’s many campaign promises was one to utilize more U.S.-produced materials, including steel, and his actions thus far have reinforced those promises.

Last week, Trump signed executive orders expediting the approval and subsequent construction of the Keystone XL and Dakota Access pipelines. An important caveat to those orders included the use of domestic steel for the upgrade and repair for the new pipelines.

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!

Wrote Leia Toovey for the Economic Calendar, “The U.S. steel sector has suffered in recent years as imported steel has gained market share at the expense of domestically produced steel. In 2016, domestic steel prices and producers recovered and part of that recovery was based on tariffs and duties that were implemented on Chinese producers who were found guilty of receiving unfair subsidies from their government.”

Global Steel Production on the Rise

It’s been a tough couple of years for the U.S. steel industry, but global steel production has also suffered significantly. In fact, of the top 10 countries producing steel, production increased in only three over that time, according to data from the World Steel Association.

Wrote our own Stuart Burns: “Supported by a sharp upturn in real estate investment, steel prices and steel production rose by 1.2% in China, reversing the previous year’s decline. China produced 808.4 million metric tons in 2016 and domestic demand continues to remain robust even as exports face protectionist headwinds.”

How will steel 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:

nickel-ore-mine

mulderphoto / Adobe Stock

It’s been all quiet on the nickel front recently as the metal is essentially even as the Chinese Lunar New Year Holiday approaches.

According to a recent report from the Economic Calendar, nickel prices ended Tuesday slightly higher due to a lower U.S. dollar, which offset the slight decline nickel saw on Monday this week.

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!

Wrote Leia Toovey for Economic Calendar: “Chinese businesses and markets will close on Jan. 27 and factories will remain closed for at least a week. With business activity at a standstill, demand for base metals from its top consumer will remain muted while there will also be fewer speculators placing their bets. With Chinese buyers absent, nickel is likely to garner the majority of its price momentum from the US dollar.”

Nickel Miners to Boost Exports?

Our own Stuart Burns recently wrote that Indonesian nickel miners might soon be allowed to export up to 5.2 million tons fo low-grade nickel ore a year. Burns wrote:

“The intent seems now to be to allow nickel miners to export providing they dedicate at least 30% of their smelter capacity to processing low-grade ore, defined as below 1.7% nickel. They can then export any excess capacity they have. That said, this move means that up to 70% of Indonesia’s nickel production capacity could potentially be put on the market, which would be equivalent to around 14% of global capacity.”

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:

vvoe / Adobe Stock

The International Lead and Zinc Study Group released its initial 2017 report, which found the global market for refined zinc metal was in deficit over the first 11 months of last year with total reported inventories declining over the same time frame.

The ILZSG revealed a significant increase in Chinese output while the world’s zinc mine production fell overall by 1.2%.

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!

“Global refined zinc metal production over the first eleven months of 2016 was at the same level as the corresponding period of 2015 with increases in China and the Republic of Korea offset by reductions in Australia, India, Japan, Mexico and the United States,” the ILZSG report stated.

The rise in worldwide demand for refined zinc metal, to the tune of 3.5%, was mostly due to an 8.8% increase in Chinese apparent usage with European demand at the same level in 2015 and US demand falling 12.7%.

Also of note: Chinese imports of zinc contained in zinc concentrates represented a 42.3% decrease compared to the same time frame in 2015 with the Far East nation’s net imports of refined zinc metal growing 7.9%.

Zinc Benefits from Investor Interest

Our own Stuart Burns wrote last week that aluminum has benefited from renewed investor interest, particularly over the course of 2016, but that it hasn’t experienced the same jolt as zinc and copper have seen.

“Although net long positions have been trimmed back following some recent significant deliveries into LME warehouses, the consensus remains positive regarding prices for 2017,” Burns wrote.

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: Adobe Stock.

The International Lead and Zinc Study Group released its initial report for 2017, which found world refined lead metal supply exceeded demand during the first 11 months of last year with total reported stock levels increasing during that same time frame.

The ILZSG report identified reduced output in China, India, Australia and the U.S. as contributing to the overall reduction in global lead mine production, to the tune of 7.5%, over the first 11 months of last year when compared to the same time frame in 2015.

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 ILZSG states: “World production of refined lead metal decreased by 1.2%. This was primarily due to a fall in Chinese production which more than balanced increases in Australia, Kazakhstan and the Republic of Korea (South Korea).”

Furthermore, the 9.1% reduction in Chinese demand was offset, in part, by a 9.5% rise in European usage.

“Chinese imports of lead contained in lead concentrates totaled 697,000 metric tons, a decline of 24.6% compared to the first eleven months of 2015,” concluded the ILZSG’s January report on lead.

Lead Buyers Saw Ample Opportunity to End 2016

Just last month, our own Raul de Frutos wrote about metal buyers finding good opportunities to time their purchases with prices pulling back following a bullish run. For lead in particular, de Frutos wrote:

“Zinc’s cousin, lead, is also retracing near an area where we should see investors coming in to support prices. If this year’s bull market is set to continue, which for now we continue to expect it to do so, lead buyers will find a good opportunity to time their purchases if prices rebound at these levels.”

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:

tin-ore

S_E/Adobe Stock

Last week, tin prices on the London Mercantile Exchange increased but the real story has been overall commodity pressure to begin 2017.

According to a recent report from the Economic Calendar, tin has ebbed and flowed in a narrow range to begin the year with last week’s upward move attributed to “a slight pullback in the value of the U.S. dollar.”

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!

Donald Levit wrote: “Tin experienced a positive performance in 2016 amid solid demand from China with idled domestic tin capacity resulting in the need for higher imports. However, concerns are that China will start to ramp up its idled capacity, and that will change the market.”

China’s manufacturing PMI registered higher than expected recently, adding to tin’s momentum. In November, China imported more tin ore and concentrates with refined tin imports falling off substantially, the news source stated.

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:

A 2014 Bureau of Labor Statistics report showed that companies in the top quartile of inventory turnover tend to have no more than three to four days of raw materials on hand. For metals suppliers this could lead to shortages and disrupt customers’ supply chains.

Two-Month Trial: Metal Buying Outlook

Supply chain financing, though, can help buyers and sellers work to manage supply and cost issues. The role of supply chain finance is to optimize both the availability and cost of capital within a given supply chain by aggregating, packaging, and utilizing information generated during supply chain activities and matching this information with the physical control of goods.

If you’re buying metals for product manufacturing, for example, it can be beneficial to have the cash-flow flexibility of supply chain financing, especially if you’re a smaller manufacturer. In supply chain finance, an agreement is made between the buyer and supplier to use credit facilities or other financial instruments to bring down costs and risks for both parties.

Buyers can utilize “buy now, pay later” open account transactions which can be counted as regular payments for a continuing flow of goods rather than specific transactions or set prices and quantities. Buyers can extend payment terms with their suppliers. Suppliers, such as metals service centers, can use their credit ratings to bring in customers who, without support from banks, might otherwise not be able to do business with them. Other third-party financiers can also join in the agreements and assist either side with loans or other financing instruments.

In aerospace and defense, this could mean optimizing purchasing across a global supply chain. SCF provider Taulia recently announced a partnership with Exostar, which provides cloud-based solutions to the sector, as well as to the life sciences and health care sectors. There are more than 100,000 aerospace and defense corporate buyers using Exostar’s solutions that now have access to Taulia’s supply chain finance offerings. Taulia’s SaaS product is being integrated directly into the Exostar interface so if you’re a small manufacturer providing electronics or metal parts, you could have the same buying advantages of a larger organization.

Earlier last year, TradeRocket and Hitachi Capital America entered a similar agreement. TradeRocket provided Hitachi Capital with a pool of mid-market buyers (companies with annual revenues of $25 million to $500 million) who, once underwritten, would be able to use TradeRocket’s early pay invoice option to its entire supplier network.

Click Here for Current Metal Prices

Giving buyers payment flexibility and suppliers access to new markets is a win-win for both bottom lines.