Sourcing Strategies

August forecast reportThe August metal price forecast is here! MetalMiner™ is proud to announce the commercial launch of its monthly buying report, featuring 30-day price outlooks for aluminum, copper, nickel, lead, zinc, tin and steel (HRC, CRC, HDG, Plate). Before we forecast August, let’s take a quick look back at July:

  • We remained “bullish” on the dollar and watched it rebound to a 6-year high
  • We watched aluminum, copper and nickel hit 6-year lows
  • China’s stock market decline impacted base metal prices in a negative way
  • Oil price declines last month stressed commodity weakness

All we can tell you about August is that any industrial buying strategy warrants a watchful eye. Want to know more? You’ll have to subscribe to our monthly outlook reports. An annual individual subscription of 12 monthly reports can be yours for $899/year.

More info and to subscribe

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The Senate Energy and Natural Resources Committee voted 18-4 Friday to advance the Energy Policy Modernization Act of 2015, a broad bipartisan measure that would fund modernization of the energy grid and reauthorize the Land and Water Conservation Fund.

Three Best Practices for Buying Commodities

10 Republicans and eight Democrats voted for the bill, presidential candidate Bernie Sanders (I-Vt.) was among those who voted against the bill, which would fund improvements to the energy grid, streamline mine permitting and set deadlines for liquid natural gas export decisions. It would also streamline the approval process for projects such the Alaska gas pipeline.

11 Environmental groups – including The Sierra Club, the League of Conservation Voters, the Environmental Defense Fund, and the Natural Resources Defense Council – oppose the legislation and sent a letter to the committee attacking several of its measures. Maria Cantwell (D.-Wash.), the ranking Democrat on the committee and a co-sponsor of the bill with Lisa Murkowski (R.-Alaska), usually enjoys the support of the environmental groups.

Controversial Measures Left Out

In fact, Cantwell and Murkowski specifically tailored the bill to avoid controversial issues that had stalled earlier energy bills over the last eight years. These included the Keystone XL Pipeline and tying any of its measures to climate change. The mainstream bill, apparently, was still not enough for Sanders of the environmental groups.

The letter said the bill needs a “stronger vision for accelerating the development and deployment of clean energy.”

The mining and manufacturing industries have generally been supportive of the bill.

“It should be a top priority for Congress this session to implement policies that take advantage of our significant resource abundance in order to bolster our energy supply and strengthen the economy,” said Hal Quinn, the National Mining Association‘s president and CEO, of the bill.

Best Option for an Energy Bill?

With the gridlock in Washington, it is difficult to pass legislation at all, let alone get everything you want. Environmental groups called out 10 specific measures they found unacceptable in the letter. These included the sections on expediting LNG exports, ending the mandate to phase out fossil fuels in federal buildings, altering certain Energy Department efficiency programs, and expediting mineral mining permits.

Last Chance: July Metal Price Forecast

They may want to reconsider their opposition if this bill passes the full Senate, which it’s on track to do. A Cantwell spokeswoman said that amendments were planned to deal with many of the environment groups’ concerns. If this bill should fail it’s unlikely that a more environmentally friendly one will pass with both houses of Congress controlled by Republicans. The Sierra Club and the other groups might find themselves wishing for a bipartisan compromise bill like Murkowski and Cantwell’s.

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Earlier this week the London Metal Exchange announced that its clearinghouse would now accept offshore Chinese renminbi as collateral, effective immediately. MetalMiner Editors and Co-Founders Lisa Reisman and Stuart Burns discuss the significance of this announcement but more important, its potential impact on industrial buying organizations.

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How will US construction purchasing move forward with, apparently, no cost certainty for Highway Trust Fund projects beyond six months?

As House members convened Monday for their final days of work before an annual August recess, Majority Leader Kevin McCarthy (R.-Calif.) ruled out taking up the Senate’s $130 billion highway bill, which cleared a procedural hurdle Monday.

Three Best Practices for Buying Commodities

“We’re not taking up the Senate bill,” he told reporters at the Capitol, adding that the Senate should instead take up the bill passed last week by the House. “My best advice to the Senate is to get our highway bill moved forward,” he said.

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Steel Drivers

July 2015 Monthly Metal Buying Outlook copy

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

1. MOH service center inventory

2. US import levels (volume trends)

3. Total China steel exports

4. Raw material input cost trends

5. Quoted lead times

Market Commentary (HRC)

Without a doubt the historical passage of several trade measures in the US has the potential to change the steel products landscape in the coming years. After all, US HRC steel prices have dropped by 25% since the start of this year. The steel industry (e.g. producers) believes this price drop has come as a result of massive imports that have begun to slow. Certainly the data supports that conclusion though other factors undoubtedly contribute to falling steel prices.

Regardless of where one stands on the import issue (either for or against) buying organizations are likely to feel the impact of the new legislation. We will discuss some of these impacts in upcoming reports.

A Fundamentals View (HRC)

Meanwhile HRC pricing has held steady from a month ago (up slightly). However, service center inventory levels (which supply some 40% of all metal to buying organizations) still suffer from too much MOH inventory. According to the latest MSCI data, steel product inventories jumped 11% in June from the same period in 2014 and perhaps more significantly, the current MOH inventory of 2.8 months of supply remains above “healthy” inventory levels.

With higher than healthy MOH inventory, service centers remain weak buyers in the market and that helps keep a lid on prices.

The Outlook (HRC)

HRC prices seem to have begun to stabilize after falling for nearly a year by closing the month of May at $464/st. We remain hesitant to call bottom particularly as the broader commodity markets remain bearish and the dollar still holds stronger. It would appear challenging for HRC to make any bold price moves to the upside. But we may have found HRC’s floor. This will require buying organizations to be particularly mindful of any upward price movements.

Market Commentary (CRC)

CRC has fallen by some 21%+/- since the beginning of the year. The pricing dynamics for CRC are similar to HRC. Undoubtedly the impact of the trade legislation signed into law in late June will impact all steel product market segments including CRC.

Globally, European mills have filed an anti-dumping suit against cold rolled coil imports from China. India has begun collecting duties on HRC products from three countries but could add CRC tariffs as well. In short, all eyes remain on China but other countries are also contributing to the oversupply.

In the meantime, domestic steel capacity utilization rates are running at 72.5%, down 7.4% from a year ago. Generally speaking a “healthy” capacity utilization rate is up above 80%.

The Outlook (CRC)

CRC prices have crept up during the month of June closing at $590/st but failing to breach last month’s short-term resistance levels. We also still see some price weakness on the horizon and continue to remain hesitant to call bottom particularly as the broader commodity markets remain bearish and the dollar holds stronger. Like HRC, it would appear challenging for CRC to make any bold price moves to the upside.

Market Commentary (HDG)

HDG continues to face price weakness, falling from $619 to $594/st, a 4% price drop. Interestingly, while steel imports have dropped during the month of May by 3.6% from April, HDG imports have continued to increase growing by nearly 17% from April to May after having jumped 20% from March to April. As with the other forms of metal, the new trade legislation will provide more enforcement “teeth” to the import process.

Six steelmakers with major US operations filed a trade complaint over HDG in June, seeking punitive tariffs for alleged unfair pricing of imported steel from China, India, Italy, South Korea and Taiwan. The suit is the first salvo in the campaign this year by the beleaguered US steel industry to protect itself against a record flood of imports.

And though US auto numbers remain positive, Chinese automotive sales continue to decline placing additional price pressure on HDG prices – which have fallen some 24% since the beginning of the year.

The Outlook (HDG)

We remain hesitant to call bottom particularly as the broader commodity markets remain bearish and the dollar holds stronger. Like HRC and CRC, it would appear challenging for HDG to make any bold price moves to the upside. It is possible, however that we will see some price stabilization.

Market Commentary (Plate)

Steel plate prices have held nearly steady this past month despite continued weakness in the energy sector, which contributes heftily to plate demand. US imports of plate products grew 13% in May and are up 36% from the same five- month time period one year ago June – May.

The Outlook (Plate)

Plate prices held steady this past month at $574/st. And indeed last month we indicated prices may be stabilizing. However, we remain hesitant to call bottom particularly as the broader commodity markets remain bearish and the dollar holds stronger. In addition, plate suffers from an inventory overhang that will take some time to work off.

So What Should My Industrial Buying Strategy Be?

This steel 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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July 2015 Monthly Metal Buying Outlook copy

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

Zinc Drivers

1. Dollar to Euro exchange rate

2. Global production

3. Global capacity utilization

4. Zinc refining capacity utilization rates

Market Commentary

Last month we reported the International Lead and Zinc Study Group suggested 2015 demand for refined zinc would exceed supply by 151,000 metric tons. Those numbers have turned out to be wildly wrong – in fact zinc is running a surplus to the tune of 181,000 metric tons. In addition, buying organizations will want to pay careful attention to the flow of metal into LME warehouses.

According to the most recent LME data available, zinc stocks declined in May by some 57k+
metric tons but some analysts believe that just the opposite will happen through July – more
inventory will make its way into LME warehouses than out of them. In addition, plenty of
extra inventory exists in non-LME warehouses throughout Asia and the United States.

Market sentiment toward zinc has hinged on the supply/demand equation and it has become a little less likely that any real zinc shortage will materialize.

The Outlook

Three-month zinc fell significantly in June, closing at $2,000/mt. As with lead, zinc’s rally this spring wasn’t sustainable in the face of a bearish commodity market. In the long-term we expect zinc prices to stay range-bound at best.

So What Should My Industrial Buying Strategy Be?

This zinc 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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In metal news today, Molycorp, Inc. is sitting a little bit prettier in its chapter 11 reorganization and South Africa’s Lonmin PLC is warning that layoffs could come from mine closures soon.

Molycorp Secures Financing

Molycorp, Inc., the only US-based producer of rare earth minerals, recently moved forward with its chapter 11 bankruptcy reorganization process and received court approval for an improved debtor-in-possession financing package provided by Oaktree Capital Management LP.

Three Best Practices for Buying Commodities

The approved DIP facility of new net financing of $130 million. Molycorp said the new funding will include additional liquidity, reduced costs, and additional time to develop a plan of reorganization that would be in the best interest of all parties.

Lonmin Warns of Layoffs

South African platinum producer Lonmin said on Friday it was planning to close or mothball several mine shafts, putting 6,000 South African jobs at risk, because of depressed metal prices. Platinum’s spot price is at 6-1/2 year lows less than $1,000 an ounce, while power and labour costs in South Africa have risen sharply.
Free Download: July Metal Price Forecast

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SMU Steel Summit 2015We here at MetalMiner™ are thrilled to be a part of Steel Market Update’s 2015 Steel Summit Conference in Atlanta, Sept. 1 and 2, featuring metals industry professionals. We will not be alone, however, as this event will be filled with steel producers, manufacturing companies, end-users and service centers affected by the ebb and flow of the metals industry each and every day. The audience will be tuned in, the discussions engaging and the takeaways tangible.

“[We have] a perfect storm of weakening demand and surging supply [that] has sent benchmark ore prices tumbling, shacking miners’ business models across the globe. After a decade of super cycle, does 2015 mark the beginning of a ‘buyers’ market’ in steel raw materials?” – Serafino Capoferri, consultant, Steel Raw Materials & Steel Costs, from CRU Analysis

Capoferri will be joined by Peter Meyers, executive vice president at Metalico and Gaurav Chhibbar, raw material manager at Cargill Metals to discuss iron ore, scrap and world pricing for the Commodities & China: The Gorilla in the Room portion of the summit.

Our own Lisa Riesman (CEO, Azul Partners and executive editor, MetalMiner™) will also be in attendance, discussing our latest forecast report and where she sees the direction of commodities heading.

So come join us at the Georgia International Convention Center on Sept. 1 and 2 for what will surely be an engaging event!

More info and registration

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buying-commoditiesIf you are in the commodities buying game for 2015 then boy, do we have the resource for you. Lisa Reisman (CEO, Azul Partners and executive editor, MetalMiner™) and Jason Busch (founder and managing director, Spend Matters) teamed up for the 3 Best Practices for Buying Commodities in 2015.

This is a must-have PDF tool kit for purchasing organizations in today’s markets. It covers why sourcing on the spot market is inherently speculative and therefore risky, as well as why using indexes when sourcing commodities is simply put: bad strategy.

If you want:

  • A unique viewpoint on how you use your direct material commodity spend
  • Information to help you bring maximum value from that spend
  • An engaging and enlightening argument against conventional wisdom

…then this is the report for you!

FREE PDF download

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Lead drivers:

July 2015 Monthly Metal Buying Outlook copy

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

1. Dollar to euro exchange rate

2. Global production

3. Global capacity utilization

4. Automotive production Europea/NA/China

5. China lead prices

Market Commentary

Lead looked a little exciting in May but June has brought prices down on the back of soaring LME inventories (please note MetalMiner does not subscribe to the notion that inventory levels necessarily correlate with metal prices). However, in March a 100,000-ton surge in canceled warrants (metal to be taken out of LME warehouses) does not suggest sudden industrial demand but rather a storage arbitrage, similar to what has happened with
aluminum and to a lesser extent, zinc.

China lead prices (not SHFE but industrial trade prices) peaked in early May and have
declined ever since according to MetalMiner IndX™ data.

Last month we made mention of data that suggested a global balance between lead supply
and demand. The most recent data from the International Lead and Zinc Study Group
suggests demand is down across the board from Europe (4.2%), the US (3.9%), China (4.3%)
and Korea (9.8%). Nonetheless the market appears in somewhat of a balance. Regardless,
we don’t see lead’s fundamentals much differently than some of the other base metals.

The Outlook

Lead prices continued to fall in June closing at $1,761/mt. The rally that we saw in April has already vanished. Neither fundamentals nor technicals support a sustainable price rally. The long-term outlook remains bearish, especially while we see other industrial metals making record lows.

Lead price forecast 2015

So What Should My Industrial Buying Strategy Be?

This lead 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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