Though we tend to focus much of our content on steel markets along with base metals, precious metals and rare earth markets, sometimes, we find our readers in need of more information around specialty metal products. Unfortunately, we only cover some of these markets sporadically. But we know that trends in one market often apply to other markets. Today we find the tinplate market behaving a bit more like the steel market (though we would expect some of that; after all, tinplate is a steel product). So we decided to speak with an expert, Rodrigo Vazquez, founder and senior vice-president of Harbor Intelligence Tinplate Unit.
MM: Why the difference in tin plate cost increases in North America vs. Europe? We understand that food can manufacturers in Europe have agreed to increases of 22 – 24% with their suppliers. But factories in, say, Canada face smaller price increases. Why is that?
RV: This year is a very interesting year because Europe is shifting from buying on annual contracts to six-month contracts. The US is the only country where the annual contract remains intact. This is an advantage for US companies (buying organizations) because less volatility exists with an annual contract. Comparatively, that has resulted in fewer price increases than say the European market. Canadian tinplate producer Dofasco (now owned by ArcelorMittal) deploys similar business practices in that country as it does in the US. Another explanation behind European and North American price differentials involves the lag in price changes moving from an annual contract to a shorter contract where spot prices have increased. Now the increases have come through as part of the new contract. (Negotiations typically occur in December and close by early January).
MM: To what extent are rising HRC and CRC prices putting upward pressure on tinplate prices?
RV: I would say that CRC has a very big influence on tinplate prices, though a lag exists between the two. When CRC starts to rise, it translates into rising tinplate pricing. It can take between 2-4 months before one sees a shift in the tinplate market. HRC has a looser relationship to tinplate because it is one additional manufacturing process step behind CRC. Tinplate behaves in a contra-cyclical way. When the economy goes bad, tinplate prices don’t drop as much as HRC and CRC. For example when demand dropped significantly in the auto industry by 40-60%, the tinplate industry felt very little if any pain.
MM: To what extent are rising tin prices placing upward pressure on tinplate prices?
RV: I don’t believe it’s a variable that has much of a significant effect. Eight to twelve percent of the total cost of tinplate is tin.
MM: Can you walk us through the dynamics of the US market from an import/export perspective?
RV: The majority of the steel by far is bought locally. Imports represent but a very small percentage of total US tinplate consumption. Imports will, however, continue to gradually grow. The European termination of the annual contract has the effect of opening that market up more to imports. Though the Chinese, Korean and Japanese producers did not previously (or currently) offer annual contracts, they can offer product for the European markets. Therefore, I believe Europe will see more imports. This will put more pressure on European mills. We won’t see much this year as the switchover will take several months, but we will likely next year start to see imports rise. The Japanese and Koreans are quoting competitively to European buyers. They know they have an opportunity to grow market share.
MM: What are buyers doing to manage volatility?
RV: We don’t see a whole lot that they can do, especially in the States. We’ve seen a few more imports but right now, hedging strategies aren’t viable. In Europe, buyers who can no longer take advantage of an annual contract can play the market, similar to steel buyers. In other words, when one feels prices may increase say during the second half of the year, a buyer may opt for a forward buy. Buyers can take a more opportunistic or spot buy strategy as well.
MM: What advice would you give tinplate buyers?
RV: Buying organizations will have to study the trends more closely now to monitor their buy. The annual contracts have gone away because of the iron ore and coking coal contracts so the mills are trying to match up their exposure. In Europe, the mills wanted to go to quarterly contracts but that didn’t work so they went to six-month contracts.
MM: Any other trends you are seeing for tinplate?
RV: Chinese production of tinplate has really improved. Though China has not started exporting much at this point, primarily due to a lack of high quality product, in two years time we’ll see more high quality product come out of China. The first objective of the Chinese involves reducing imports and then eventually they will start exporting.