Over the past two weeks we have written about diverse uses for daily global metal price data. At times, the uses appear obvious, as in the first and second posts, and some slightly less so (although not for savvy industrial metal buying organizations.) However in this, our final installment of this series on uses of metal price data, we could characterize the use case as “battlefield intelligence.”
By this we mean taking the same price data available to anyone, but using it for a more targeted purpose. In particular, this post examines some of the very specific ways producers might take advantage of this type of price data. (In turn, industrial buying organizations will hopefully also glean a few helpful nuggets of insight as well.)
Anti-Dumping and WTO Violations
Rules-based free trade as set by the World Trade Organization forms the basis of how many countries engage in global trade. Yet each country has its own governmental agencies set up to enforce such agreements, as well as serve as the go-to resource for any alleged trade violations.
Though the International Trade Commission (ITC) for the US Department of Commerce evaluates a broad range of manufacturing sectors and products, metals have long comprised a great majority of the anti-dumping cases brought by US industry against a range of countries. US producers often identify anti-dumping concerns when they see certain patterns of behavior, often without any hard data.
For example, the steel industry closely monitors steel product import levels, licenses applied for and percentage growth/declines of various products by country. When triple-digit increases occur, for example, as they did for pipe and tube products in 2007 and the early part of 2008, steel producers filed an anti-dumping case. Producers also glean intelligence by looking at existing customers, order history and sheer market share in an attempt to identify whether imports have suddenly surged, leading to the question of a dumping violation. However, though the sheer volume of imports for a particular product may prove a necessary condition, it may not act as a sufficient condition to confirm dumping has occurred.
But imagine a world where domestic producers could compare their prices against foreign producer prices in the foreign companies’ local markets? Such a service would provide US producers with an instant means of identifying potential violations, particularly in context of a direct price comparison between foreign vs. domestic market prices. Domestic producers could also use the service strategically as a means of optimizing margins and pricing products inside what we call “the arbitrage opportunity. In other words, domestic producers could use the data to price their own products less than the cost a foreign producer would charge along with freight, financing and other shipping charges. In essence, the US domestic price need not undercut the foreign country’s FOB or ex-works charges, but it needs to undercut the total landed cost.
What’s Good for the Goose
On the flip side, industrial metal buying organizations who have purchases large enough to justify global sourcing (e.g. container-load shipments of semi-finished materials) can also identify when it makes sense to source globally vs. domestically. As producers may wish to close arbitrage opportunities, buying organizations can more effectively identify and take advantage of them.
A telling note: we have seen a spectacular growth in readership of this site among the producer and mining communities. Nearly all of this growth has occurred in the supply chain management function (e.g. procurement or supply chain groups) within many of these large producers. Undoubtedly the price data, forecasts and analysis covered on this site — while geared specifically toward manufacturing organizations further downstream from the semi-finished product producers — should come as no surprise to see that this producer community also seeks raw material sourcing intelligence, metal price forecasts and economic and policy analysis.
Downstream manufacturers may wish to pay heed. What producers do with price data contains lessons for the downstream buying community.