Ferrous Metals

The biggest monthly gain in petroleum prices in more than 3 years caused construction materials prices to increase 0.4% in February, ending a six-month streak of falling prices, according to the March 13 producer price index release by the Bureau of Labor Statistics analyzed by the Associated Builders and Contractors of America.

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Year-over-year construction input prices fell 3.9%. Nonresidential construction input prices also rose 0.4% on a monthly basis and were down 4.9% on a yearly basis.


Graph courtesy of Associated Builders & Contractors based on BLS data.

“While conventional wisdom suggests that oil and natural gas prices will eventually rise, the adjustment period could be a lengthy one, and although crude petroleum prices were up 12.3% on a monthly basis, this is likely a function of an abnormally cold February,” said Associated Builders and Contractors Chief Economist Anirban Basu. “This rise is the first monthly gain since April 2014 and the eighth consecutive month in which petroleum prices were down on a year-over-year basis.”

Materials Prices That Increased in February:

  • Non-ferrous wire and cable prices grew 0.8% on a monthly basis but fell 4.4% compared to last year.
  • Crude petroleum prices gained 12.3% in February but are down 53.4% from the same time last year.
  • Crude energy materials prices expanded 0.9% in February but are 45 percent lower year-over-year.
  • Concrete products prices expanded 0.2% in February and are up 4.3% on a yearly basis.

Materials Prices That Decreased in February:

  • Prices for plumbing fixtures fell 0.1% percent in February but are up 3% against last year.
  • Fabricated structural metal product prices remained flat for the month and have expanded 1% on a year-over-year basis.
  • Prices for prepared asphalt, tar roofing and siding fell 1.4% for the month but are up 1.7% on a year-ago basis.
  • Iron and steel prices fell 5.4% in February and are down 10.6% from the same time last year.
  • Steel mill products prices fell 1.8% for the month and are 3.6% lower than one year ago.
  • Natural gas prices fell 11.2% in February and are down 51.8% from one year ago.

Last week, my colleague Stuart wrote a piece on the relationship between iron ore prices and Chinese steel production. In his piece he said, “The FT suggests the iron ore market is supported by the marginal cost of production in China (said to be around $130 per metric ton) but that doesn’t explain the strength of prices or the stockpiling. For that we have to look at steel production, particularly in China, which has been running at record levels, rising 2.5 percent in May to 61.2 million tons.”  Stuart probably didn’t catch a research brief published by intelligence experts Stratfor dated June 20 suggesting, “Since 2011, Beijing’s enforced slowdown in real estate and infrastructure investment — combined with dwindling external demand — has aggravated the severe imbalance between steel supply and slowing domestic demand, “ and more to the point, the imbalance has come by way of local governments’ need and desire to grow steel production to provide employment.

And steel prices will….

As Stuart concludes, “that Chinese steel production, and by extension iron ore consumption, must slow in the second half with a corresponding fall in prices; the longer the current situation prevails, the greater the likely reaction will be and steeper the price falls,” but in the meantime, domestic steel buyers shouldn’t look at the recent scrap price fall (now prices have moved slightly up) as a sign that prices will necessarily drop within the US market.

According to Peter Wright of Gerdau Market Update in an interview with MetalMiner, “the recent scrap price drop is really an ‘in-line’ kind of drop because scrap prices had been building up for quite awhile and the market adjusted,” he said. But the driver of scrap pricing could change in the next four to six weeks according to Wright because, “domestic demand will be down in June and July which could cause another drop. There has been some talk already of a July scrap price drop.”

And though many of the underlying drivers at least of the steel long products market remain quite positive (Wright points to a surprising uptick in durable goods orders from April to May up 1.1%, 13 quarters of growing corporate profits and 4 out of 5 steel long products indicators moving from red to green last week) several gray clouds still appear. These include a stronger dollar that would make US exports less attractive as a result of the Euro crisis, which Wright suggested, “could get very ugly,” particularly the combination of a strong dollar and feeble European economic growth.

US steel prices peaked for HRC and CRC the week of February 6, 2012 after climbing from a low point in the week of November 18, 2011. Prices have only dropped below the November 18 peak last week. We suspect steel prices will begin to stabilize.

The MetalMiner Monthly MMI® which includes several steel indexes, including the Raw Steels MMI®, Automotive MMI®, Construction MMI® among others will first appear on MetalMiner IndX, Monday July 2. Additional releases will appear on July 3, July 5 and July 6.

The week’s biggest mover on the weekly Automotive MMI® was US palladium bar, which saw a 6.9 percent decline to $571.00 per ounce. For the third week in a row, the price of US platinum bar dropped, falling 4.1 percent to $1,392 per ounce.

The price of US HDG fell 2.2 percent over the past week as well. This was the third week in a row of declining prices despite a still-growing aluminum sector when compared to last year.

The copper 3-month price fell 2.9 percent on the LME to $7,335 per metric ton after rising 1.9 percent the week before. Following a 2.3 percent increase in the week prior, the primary copper cash price fell 2.8 percent on the LME last week to $7,353 per metric ton. The Chinese lead price closed down last week with a 2.5 percent drop. Korean 5052 coil premium over 1050 sheet remained essentially flat from the previous week.

Note: The MetalMiner monthly MMI series will be first released on July 2, via MetalMiner IndX and subsequently over the course of the week of July 2.

The Automotive MMI® collects and weights 7 metal price points used in automotive production to provide a unique view into automotive metal trends. For more information on the Automotive MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.

India’s steel sector seems set to see some good times ahead though the news may not be so cheerful for steel consumers.

A slew of upcoming investments in India, many of which will require large quantities of steel, is one of the main reasons for the country’s steel industry positive outlook in the latter half of this fiscal year. About 74 investments worth a total Rs 508 billion (approx US $ 8.84 billion) have been identified, many of which will require a steady supply of steel. The largest in the 74 investments is incidentally a Rs 300 billion (approx US $5.30 billion) steel manufacturing plant in the Indian State of Karnataka by Tata Steel, clearly underlining the bullish behavior in this sector. The plant will eventually produce up to 6 million tons of steel.

The demand for steel in the next half of this fiscal year is expected to be led by automobile companies. Two-wheeler company, Hero Motocorp plans to invest Rs.5 billion in its existing plants in Dharuhera, Gurgaon in Haryana and Hardwar in Uttarakhand for renovation and modernization. All of which means a boost to the steel sector despite possibilities of a slowdown in the international markets.

A report by one of India’s leading private economy thinks tanks, the Centre for Monitoring Indian Economy (CMIE), released over the weekend said steel production in India was likely to grow by about 10.4 per cent this fiscal year due to growth in demand.

In terms of supply, Indian steel producers continue to rely to a large extent on imported steel. According to a study by the Joint Plant Committee, a body empowered by the Steel Ministry of the Govt. of India to collect data from the iron and steel sectors, India’s steel imports had jumped by 69% to 1.528 million tons in the first two months of this year due to the firm demand from the automobile, consumer durables and manufacturing sectors. India’s steel imports during the April-May period of the last fiscal year were at 0.907 million tons.

Over the weekend, Indian newspapers also carried reports quoting excerpts from this report. One of them said despite the slowdown in domestic conditions in some of the end-use markets, demand remained firm from sectors like motor vehicles, transport equipment, basic goods, consumer durables and manufacturing.

Of the total imports during April-May this year, flats made up 1.329 million tons with non-flat products making up the balance.  Consumer durables uses the former while the construction industry larges uses non-flat varieties.

Experts though warned that the weak rupee in the international currency markets as well as the fluctuating US dollar/rupee exchange rate, largely in favor of the dollar could underlie the high imports.

End-consumers may see some bad news. Prices may not remain flat due to healthy demand. A rise in raw materials costs coupled with a hike in excise duties could eventually see steel prices increase by about 5.7% this fiscal as compared to the previous one, if one believes the CMIE report.

In its monthly report, the agency said it expected steel companies to undertake a further round of price hikes in the coming months of 2012-13. Not long ago, in fact just this past April many of India’s steel companies increased prices in the range of US $125 – $250 per ton, following a provisional change in prices indicated by state-run iron ore producer, NMDC, and the freight hike by Indian Railways.

Nickel 3-month prices saw the biggest upwards shift for the day, rising three percent on the LME to close at $18,065 per metric ton on April 27, 2012. Also on the LME, the price of primary nickel rose 2.7 percent to $17,965 per metric ton.

Chinese stainless steel prices were mixed for the day. The price of Chinese 316 stainless coil remained steady, holding above $5,000 per metric ton. The price of Chinese 304 stainless coil continues hovering under $3,000 per metric ton for the fifth day in a row. The price of Chinese 316 stainless steel scrap remained essentially flat, also under $3,000 per metric ton. For the fifth consecutive day, the price of Chinese 304 stainless steel scrap held flat at above $2,900 per metric ton.

For the fifth day in a row, the prices of Chinese ferro-chrome and ferro-moly saw no notable movement. The price of Chinese primary nickel gained 1.1 percent to finish at CNY 133,000 ($21,147) per metric ton.

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I recently came across a newsletter article with great relevance to MetalMiner readers — How to Fix Index Based Pricing — that offered up three suggestions for individuals seeking to develop a price indexing schema for purchases.

The author states a hypothesis often not articulated by the purchasing organization – having a “fixed, predictable price is just as important, or even more important than having the lowest possible price.” We’d concur with this hypothesis, based on our own experience with the statement that buying organizations have tended to ask suppliers to hold firm, for longer periods of time, the quoted price paying less attention to whether the price has reached rock bottom or not.

The author of the linked piece above goes into the case for longer fixed prices that we won’t dive into here. He also suggests three factors to consider when using indexes – choosing the right index, adding a cap (or collar, as we would say) and picking the right timing for price adjustments (the author suggests the longer the better).

Here we might consider an alternative point of view. Certainly if holding prices fixed remains paramount to all other considerations, then in our world of metals, quarterly price adjustments might indeed make perfect sense. However, we’d add a caveat to that based on market conditions.

Pricing Dynamics

We’d suggest that the index strategy should also take into consideration the pricing dynamics of the underlying commodity. For example, the index strategy, so to speak, may change based on whether the underlying commodity’s price has upward price momentum, downward price momentum or basically holds steady.

In a rising cost market, using an index as the author suggests makes perfect sense – “tak[ing] as much off the table as possible” can help the buying organization hold prices firm for longer. But if the underlying commodity faces downward price momentum, a longer fixed contract makes less sense even if one desires price stability.

Instead, buyers may wish to hold off on buying decisions until the last minute, taking advantage of lower prices as they drop, minimizing the risk of purchasing inventory at a higher cost. In flat markets, buying organizations can follow the practices of a rising market – taking as much off the table as possible and holding prices firm, actually modeling market conditions.

In a follow-up piece, we’ll explore how the new CME aluminum swaps contract will allow buying organizations to do just this – hold prices fixed firm for longer time periods.


We at MetalMiner are always on the lookout for sourcing efficiencies in the industrial metals supply chain — and those who make said efficiencies their business. That’s one of the main reasons we chose the sponsors that we did for our recent MetalMiner and Spend Matters conference, Commodity EDGE; they are all at the top of their game in their respective industries.

One of those sponsors, Triple Point Technology (TPT), operates in the commodity-supply-chain and risk management world. In a recent case study outlined in a Spend Matters Perspectives research paper, after hiring TPT, a global consumer packaged goods (CPG) company reaped numerous benefits, including “the ability to better manage overall margins due to complete pricing visibility across the marketing and sales functions.”

This clearly has implications in the metals sourcing world, and from a raw materials standpoint, Triple Point has made inroads into the coal and minerals supply chain specifically by acquiring QMASTOR, whose “Pit to Port is the most complete end-to-end mining software solution.”

How Exactly Does Pit To Port Work?

Basically, QMASTOR’s Pit to Port software is used to “plan, record, track, optimize, account, reconcile and report the tonnage, quality and value of bulk materials from mine to point of export or consumption,” according to TPT’s site.

Any management team, it goes without saying, needs the wherewithal to keep track of the millions of tons of coal and other raw materials and minerals — otherwise, inefficiencies would erode margins very quickly. In fact, according to QMASTOR, they are contracted out to manage 1 billion tons of “bulk commodity movements” per year in coal, iron ore, copper, nickel, bauxite, lead, molybdenum, silver, and gold.

“The system synchronizes operations, logistics, marketing and commercial functions,” which streamlines the view of the entire supply chain. QMASTOR’s software plays in some pretty big mining companies’ systems — BHP Billiton, Rio Tinto, Vale, Anglo American, and Xstrata, to name just a few.

Of course, if your manufacturing or distribution company is not a huge behemoth like the Rios and BHPs of the world, you may not be tracking billions of tons of materials. However, for midsize and larger manufacturers, understanding the basis of commodity management tools such as these can help retain — and even increase — profits.

Check back in for a follow-up on this post, in which MetalMiner plans to share insights from TPT/QMASTOR (and another recent acquisition, Algosys) on what lessons manufacturers can learn from the operation of these systems.

Image source: Triple Point Technology

In an effort to ensure fuel supplies for its steel and power plants, India’s Tata Group initiated talks for a joint venture with South African company Increase Coal (Pty) Ltd., reports Business Line.

The article notes that the proposed venture can produce about 9 million metric tons of metallurgical coal, which is used largely by the steel industry. Citing unnamed sources, the report further says that the coal from the proposed joint venture in South Africa may also be exported to Tata Steel’s Corus plant in Europe.

The talks between Tata and the South Africa’s Increase Coal are at a very preliminary stage and a lot of details need to be finalized.

According to the Business Line article, Increase Coal’s mine is situated about 500 kilometers from the world’s largest coal export terminal, Richard Bay Coal Terminal, which handles coal exports of 91 million tons a year. Richard Bay is positioned between the Atlantic and Pacific coal markets.

Indian steel manufacturers are dependent on coal imports because of fuel shortages on the domestic front. Some big firms have already acquired coal blocks in overseas countries.

With the rising economy, India is developing more power plants requiring more coal in the near future — which is crucial for the power sector, steelmaking, cement-making and other major industries. The state-owned Coal India Limited (CIL) is the country’s major source of coal. CIL accounts for more than 80 percent of India’s overall coal production.

Over the last few years, coal’s demand-supply gap is increasing on a year-to-year basis.

According to rating agency ICRA Limited (formerly Investment Information and Credit Rating Agency of India Limited), the domestic demand-supply gap of coal may considerably widen in the medium-to-long term on the increased demand from the power sector, steel mills and cement plants.

As per India’s Annual Plan 2011-12, the total indigenous coal supply is planned at 559 million tons as against the estimated demand of 696.03 million tons. However, CIL has reduced the production targets at 452 million tons and 454 million tons, respectively, for 2011-12.

Coal shortages in India are likely to increase because of some recent developments and announcements made by the federal government during recent times.

Recently, the Prime Minister’s Office (PMO) has directed CIL to sign fuel supply agreements with power plants that have signed power purchase agreements with distribution companies. This will require CIL to sign supply agreements of 504 million tons of coal during 2012-13, whereas CIL has set a production target of 454 million tons for 2012.

Analysts say that if CIL will follow the PMO directive, power producers may be happy, but the domestic steel mills and cement plants will suffer more coal shortages.

The global economy slowdown has a clear impact on India’s infrastructure segment, and as a result, coal imports have recently fallen in the country. The available data suggest that India’s coal imports fell 13 percent in February from the previous month, as slowing economic growth hurt demand. The data show that the country imported 6.75 million tons of steam and 2.59 million tons of coking coal.

Reports suggest that India could import about 114 million tons of coal in 2011/12. India bought about 82 million tons of coal in 2010/11.

India imports coal from Indonesia, Australia and South Africa. Until recently, Indonesia was the preferred choice for coal imports by the Indian firms, but new coal policy in Indonesia forced Indian companies to find other sources.

TC Malhotra contributes to MetalMiner from New Delhi.

Our editors had the chance to speak to a couple leading analysts in the commodities sphere recently.

These analysts are unlike we’d ever encountered before. Their real-world market examples hit very close to home. Their metaphors bristled with creativity and helped us bridge the gap between what commodity markets are doing, and how companies should be handling their decisions based on this activity. And not least of all, they’ve got impeccable style.

Regrettably, these two analysts politely declined our invitations to speak at our conference, beginning next Monday, March 19. It wasn’t due to a lack of passion or desire to share their knowledge with attendees; it was simply a long-standing scheduling conflict:

They’ll be in school.

Here’s what they had to say.

Lisa Reisman spoke with Omer Abdullah, co-founder and managing director of The Smart Cube, Inc., about how companies are — and should be — thinking about black swan events and their impact on commodity sourcing.

*Hear Omer speak in person next Monday, March 19 — he will be leading a roundtable session titled “Forecasting, Statistical Modeling and Building Internal Competencies” — at our upcoming conference: