Using Metal Price Indexes to Track Obscure Metals

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jewelry on barbed wire

jewelry on barbed wire

MetalMiner tends to field many types of questions from metal buying organizations. But many of the questions tend to center around whether or not we track a very specific metal price point within our MetalMiner IndX℠.

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By something specific, I mean we receive requests like this one (from a Fortune 500 company): Do you have a metal price index or a metal price  for the following specific metals: magnet wire and aluminum magnet wire?

Or like this one, “Do you have other GOES price points like M2, M4, M5 and M6?

Or like this one, “Do you track XYZ grade of steel coil?”

And our replies often look like this:

“To the best of our knowledge, there is no metal information service that supplies pricing information on the specific types and forms of metals that you asked about.”

The reason there is no specific index for these types of metals is that they are pretty niche from a metals market perspective and the markets aren’t liquid enough to gather enough price data from market participants to create an index. In some cases, the supply markets look more like monopolies or oligopolies (for example, tinplate remains a rather obscure metal from a price index perspective).

As we say around here – be a problem solver!

Just because a specific price index does not exist doesn’t mean you can’t use alternative prices to serve the same purpose.

Stainless Steel and Nickel

There are several price correlations that nearly every metal buyer already uses to track alternative metals. For example, most stainless buyers track nickel prices because it’s the nickel that drives the price movement:

Stainless vs Nickel

Source: MetalMiner

In fact, a guest author on MetalMiner reported back in April, looking at data from January 2012 to January 2014 a correlation of 0.87 between the nickel price and stainless steel prices.

HRC Steel and Scrap

Most steel buyers track scrap because it correlates to HRC prices:

HRC_Scrap

Source: IHS Global Insight, UBS Estimates

Buying organizations can apply the same principles to more obscure metals. For copper magnet wire for example, it will depend on the country of origin.

  • If you are sourcing from China, you can use the China copper wire price (this is commonly published in most metal indexes including our MetalMiner IndX)
  • If the materials are coming from the US, you would use the copper producer price 110 or 122, most likely (and again, available with some pricing services)
  • Then you would ask your supplier to split out the value-add (alloying, processing and producing to your desired wire thickness) and bid that out and hold it fixed

Tinplate remains a little tricky because the underlying metal (CRC), though easily tracked, has poor correlation with tinplate prices. Tinplate producers tend to act more as an oligopoly and that’s why prices for tinplate did not fall during the Great Recession.

The Bottom Line

Almost rarely do metal buying organizations require an absolute 1:1 match with their obscure metal prices to an index. Another related index will do the trick 99% of the time, providing the means for buying organizations to better manage their metal spend.

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