For metals industry professionals looking to plan out their purchases — especially as Section 232 investigations continue to loom — there can be an almost dizzying number of factors to consider.
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MetalMiner’s Budgeting Workshop on Wednesday, July 26, in Chicago aimed to bring a little clarity to the decision-making process.
The workshop, attended by 16 metals industry professionals, featured expert advice from MetalMiner Founder and Executive Editor Lisa Reisman, Editor-at-Large Stuart Burns, stainless steel expert Katie Benchina Olsen and Procurement Forecast Analyst Irene Martinez Canorea.
Many of the event attendees were looking for the same thing: information to improve their company’s forecasting abilities. Luis Velez, for example, the strategic sourcing and supply chain director of the Welding Group at ITW, said he hoped for a “better way of forecasting and outlooking prices on metals,” citing inconsistency of other forecasting tools.
Reisman began the workshop with a presentation covering everything from the genesis of MetalMiner, the state of various markets — in a snapshot, commodities are bullish, industrial metals are bearish — and MetalMiner’s Benchmark service.
MetalMiner’s Benchmark service, launched in February, allows prospective metal buyers to tap into a database that includes: data from 1,300-plus companies in 21 industries; more than 31 million actual price points of industrial metals; and the ability to compare metals by type, grade, form and size. The application offers self-service and an enterprise versions.
Reisman also discussed the framing of MetalMiner’s forecasting approach. In short, she reviewed the reasons for not engaging in long-term forecasting — the time frame lends itself to unreliable predictions. Rather than focusing on trying to predict what the specific price of something will be at a specific time — somewhat of a fool’s errand — MetalMiner aims to find out how those in the metals industry can source, buy and procure with greater confidence by understanding market trends.
Moving away from a macroeconomic approach focused on demand factors (GDP, China PMI and others), MetalMiner zeroed in on statistical regression models, starting with aluminum.
“We reframed the challenge,” Reisman said. “It’s not predicting what the price is going to be at a specific point of time. That’s irrelevant. And guess what? All of us would be multimillionaires sipping margaritas on the beach because we wouldn’t be doing metal-buying if we had that information or figured out how to do that.
“The challenge is having the confidence to say ‘should I buy long now?’ or ‘should I be buying on the spot market? Should I enter into a volume contract, should I use an index, should I not use an index?’. … That’s the challenge we want to seek to address.”
In short, the approach is about behaviors, not specific numbers at specific times.
“When we look at our track record, our track record is not based on predicting the price of metal, it’s based on ‘did we call the right behavior at the right time?'” Reisman said.
So what does go into the analytical approach for the short term? Surveying commodities trends, industrial metals by class, individual metals, and price and volume all factor into the outlook.
“One of the things that we find that there’s been a disconnect in our industry is there’s a lot of fundamental analysis — supply and demand — and not a lot of quantitative analysis looking at what the markets are doing,” Reisman said. “Hedge funds and traders are taking more of a quantitative approach to looking at markets and I think we as industrial buyers also need to have a similar approach.”
Before breaking up into small discussion groups by metal class, the workshop invariably turned to Section 232 — that is, the Trump administration’s still-pending investigations of steel and aluminum imports on the grounds of national security — and the North American Free Trade Agreement (NAFTA).
In terms of Section 232, trade policy measures that have been suggested include tariffs, quotas or a hybrid approach combining the two.
“I think 232 scares most people only if quotas are put in,” said Jack Bellissimo, sourcing manager for Hubbell, Inc. “So if they put a quota in and say you are able to ship 20,000 tons a year in, and now you can only ship 1,000 tons, now tube and pipe business is able to really come out and be aggressive.”
Many expected Secretary of Commerce Wilbur Ross to announce the findings of the steel investigation by the end of June. That didn’t happen, however, and comments from President Trump earlier this week indicated steel trade policy might not be at the top of the administration’s to-do list at the moment.
Other questions that need to be resolved, aside from which specific measure (tariff, quota or a combination) could be employed, include designation of a baseline year for the policy and potential carveouts for certain metals, like grain-oriented electrical steel (GOES), Reisman said.
As for NAFTA, the Trump administration is looking to renegotiate the 23-year-old trilateral trade agreement in order to reduce long-standing trade deficits with Mexico and Canada. The Office of the United States Trade Representative recently announced negotiations on NAFTA will begin Aug. 16 in Washington, D.C.
Following the conclusion of the presentation, the workshop attendees split up into groups to trade notes on a number of industry issues, including ways of measuring performance, cost-saving, indexes and more.
The stainless steel sub-group talked amongst each other about contract length (six months was the most common length discussed), surcharges and how weights are determined.
“Are you billed on actual weight or theoretical weight, or are your requiring that you’re billed on minimum thickness of the material,” Olsen said, recapping the questions posed.
The consensus was that they were billed theoretically, Olsen said.
Free Download: The July 2017 MMI Report
“But the best practice, I think, that we all agreed was if you can get away with it, [is] minimum,” said Trevor Stansbury, president of Supply Dynamics.
For more information about MetalMiner’s Benchmark service, visit the Benchmark page at benchmark.metalminer.com.