Though 2013 has proven slightly less volatile for certain metals markets (base metals, for example), commodity volatility remains alive and well in the steel supply chain due to four factors, according to Accenture.
These factors have driven companies to a great debate: “…whether the industry should actively embrace futures markets and other hedging mechanisms or rather wait to see how they mature.”
The volatility comes from four areas, according to the study – global macroeconomic and financial volatility, emerging markets’ macroeconomic policy flipping, the shift in raw material supply contracts (namely from an annual to a quarterly timeframe) and lastly, the stalling of M&A activity within the global steel industry.
And though the study really examines steel producers’ supply chains, any steel buying organization will stand to glean market intelligence by better understanding the upstream challenges and constraints.
The steel billet cash price fell 1.4 percent on Sept. 27, 2012 to $345.00 per metric ton on the LME, making it the day’s biggest mover on MetalMiner’s steel price index. Also on the LME, the steel billet 3-month price declined 1.3 percent to $346.00 per metric ton.
As the China Iron & Steel Association (CISA) conference in Dalian, China, continued, more news has come to light of iron ore output slowdowns. According to the FT, Liu Xiaoliang, executive deputy secretary-general of the Metallurgical Mines Association of China, “told the conference that low prices have forced about 40 per cent of the country’s iron mines to suspend operations.”
China’s drop in steel demand is causing trouble for iron ore and coking coal consumption and prices, a worrisome proposition for the likes of Rio Tinto, BHP Billiton, Vale and Anglo American.
With gold prices over $1,600 per ounce, what gold miner/producer wouldn’t want to take advantage of gold’s decade-long bull run?
Turns out, at least one Australian gold mining company. Why? Call it a shrewd approach to commodity risk managment.
In order to manage his company’s commodity risk — namely, the risk of gold prices falling in the near future — Brian Rear, chief executive of Australia’s Millennium Minerals, is warming up to hedging of future gold prices just in case of a souring market, according to a recent Wall Street Journal article.
Here’s Episode 4 of MetalMiner’s Sourcing Outlook, brought to you by Zycus.
In the first episode of 2012, MetalMiner takes a look at the center of the commodity market storm — the EU debt crisis and impending (or already begun?) recession.
In MetalWatch, we check in on stainless steel, as the ThyssenKrupp-Outokumpu merger looms in the background. And in the One-On-One segment, Lisa Reisman discusses Buy America with Roger Ferch of the National Steel Bridge Alliance and Jennifer Diggins of Nucor. (*If you’ve watched clips of the interview that were previously published — here and here — you’ll want to make sure to watch the entire interview above, since we’ve included as-yet unseen footage.)
The episode is viewable here on the blog (look for this episode and future ones on the left side of the MetalMiner home page as we release them) and on MetalMiner’s YouTube channel. Please subscribe to MetalMiner’s YouTube channel if you haven’t already.
If you haven’t yet had a chance to peruse the Featured Speakers list for MetalMiner and Spend Matters’ upcoming event, you should take this Friday morning (or afternoon, or evening, depending on your time zone) to do so.
We just added a few key speakers this week, all of whom have extensive experience in commodities. As the conference will be focusing on providing sourcing strategies and tools for buyers across commodity sectors, our speakers’ expertise reflects the interconnected natures of commodities markets and their supply chains.
If you’re a steel buyer or supplier, you’ll want to hear Peter Wright lead the Steel breakout session on March 20.
Peter is the Producer of Gerdau Steel Market Update, which we follow quite closely. He spent 51 years in the steel industry, with experience in quality engineering, metallurgy, product development, sales, marketing, operations management and corporate management as VP of the Bar Products Business Unit with Chaparral Steel Co. In 2007, Peter received the AISC Special Achievement award for “Analysis of the structural steel industry that has aided the development of metric-based marketing statistics.”
If you’re an energy buyer — we’d be shocked if you or your company did not buy energy to some degree — you can’t miss Mark Pruitt (leading the Energy breakout session), who worked at the Illinois Power Agency. Currently, Mark serves as Principal, the Power Bureau, and as Program Director at the Illinois Community Choice Aggregation Network (ICCAN). Before he joined ICCAN, as Director of the Illinois Power Agency, he secured electricity supply on behalf of residential and small commercial ratepayer accounts serviced by Commonwealth Edison and Ameren Illinois.
Mark created one of the largest utility aggregations (natural gas and electricity) for the State of Illinois during his time at the University of Illinois, where he managed purchasing on behalf of 27 state agencies and 12 municipalities. Prior to his University work, he developed energy efficiency and power generation projects for federal clients on behalf of Nicor.
And if you deal in or with transportation, Chandler Hall of BravoSolution (leading the Transportation breakout session) should leave you with more than enough to think about — and act upon. Chandler is a Vice President with BravoSolution based in Chicago.
Over more than 12 years with the company, he has helped to build then lead their Collaborative Sourcing practice for transportation globally, across a wide range of client industries. This has included the development and advancement of applying advanced optimization capabilities to the transportation sourcing process and creating unique transportation spend management solutions.
Even though Eastman Kodak has declared bankruptcy, there is just enough industrial demand being mustered in the solar panel, battery and conductor sectors, not to mention investment in ETFs and physical metal, to give the silver price its best start in a new year since 1983.
According to a recent article in Bloomberg BusinessWeek, silver as a commodity is back in business. The silver price hit $33.8575 yesterday (up 22 percent since Dec. 31), and a survey of analysts points to a price average of $37.50. Silver is notorious for its volatility, and indeed proved the most volatile metal tracked by Bloomberg over the last eight months, dropping 44 percent over that time period.
Manufacturers on a Slow Rebound
Eastman Kodak and other photographic film manufacturers used to account for a good percentage of silver demand, but that has “slid at least 66 percent in the past decade,” according to estimates by the Silver Institute. (Kodak announced that it would stop producing Kodachrome film in 2009.)
But a mix of increased industrial usage (global solar-panel installations increased capacity by 70 percent last year, and Barclays Capital estimates manufacturers to use 15,415 tons of silver this year, up 2.5 percent from 2011) and physical investment (196 tons added to ETP holdings this month, and 189 tons of American Eagle silver coins bought) has definitely buoyed the silver price.
However, will silver’s bullish performance last?
Better Hold Your Breath
While analysts at Standard Chartered Bank and others sound positive on silver’s upswing in the short term, a few others are saying no. (Silver is still relatively cheap compared to gold, with the gold/silver ratio at 51.5, down from 57.4 in December, according to Bloomberg):
Larry Edelson, writing in ETF Daily News recently, made clear his view that precious metal markets, including silver, are headed down. The way he sees it, “in silver, we would need to see a daily close above $35.79 followed by a close above $37.79 on a Friday closing basis to turn silver’s intermediate-term trend back to bullish. Short of those signals, silver remains in a position to plummet yet again.”
Underpinning all of this, there is the whole Eurozone debacle, and the flailing Euro economy may still be the biggest roadblock to unfettered silver price growth. The Bloomberg article cites the IMF recently lowering its growth forecast from 4 percent to 3.3 percent as the main indication that these macro problems could cause trouble in this commodity market.
Edelson mentions the Eurozone crisis could mean better news for the US dollar than for gold or silver, as European debts will send capital more directly to the dollar.
Ultimately, to have silver break out of its mid-$30s range, we’d need a double-edged recovery in the Eurozone and an increase in worldwide manufacturing demand (developing and emerging economies must get back into stable-enough positions to buy more solar panels and plasma TVs) — otherwise, the silver bears may just have a point.