Author Archives: Stuart Burns

A mining giant is blocked from a major new investment due to a human rights group campaigning on behalf of Indian tribes. Sound like a typical story of a US minerals company being prevented from starting a major domestic project? Well, no — contrary to popular belief, it is not free reign in the developing world but restrictions at home.

This is Vedanta Resources, a major Indian metals and mining group under siege from a human rights and environmental group Survival International, reported in the Daily Telegraph.

Apparently Vedanta has been working their way through the regulatory process for several years in order to gain approval for a major new bauxite mine in Orissa State, Eastern India. The bauxite would be used for making alumina and finally aluminum, a metal that is experiencing rapidly growing demand in India in line with the rest of the economy. One of the less well reported issues of globalization is that multi nationals face similar environmental challenges all over the world now — a fact of which Vedanta is only too well aware.

Here’s an old idea that has caught the attention of commentators  this week but  with a new twist due in large part to the high price of the metals involved. Metals and material have been recycled for decades and in many countries considerable encouragement is given by governments in an effort to reduce raw material and energy consumption. But the rise in the price of gold, silver and many other metals used in the electronics industry has given the recycling of mobile phones, laptops and other electronic devices a major boost and promoted the phrase urban mining. The figure that caught my eye was a direct correlation to the mining industry ” one ton of ore from a gold mine produces just 5 grams (0.18 ounce) of gold on average, whereas one ton of discarded mobile phones can yield 150 grams (5.3 ounces) or more, according to an article in Reuters.

The article goes on to say the same volume of discarded mobile phones also contains around 100 kg (220 lbs) of copper and 3 kg (6.6 lbs) of silver, among other metals. Hence the phrase urban miners used to describe the recycling industry that has grown up around this resource. The company being reported, Eco-System of Honjo, Japan typically produces about 200-300 kg (440-660 lbs) of gold bars a month with a 99.99 percent purity, worth about $5.9 million to $8.8 million. That’s apparently the equivalent of a small gold mine.

In a country with 128 million people with over 80% mobile phone ownership and who on average change them every 2 years 8 months, you would think there would be a never ending supply of raw material. But you would be wrong, only 10-20% of the phones discarded each year are recycled. Why? Largely because of fears that the phones contain personal data, people horde them away rather than risk releasing them for recycling. As PC’s, laptops and now even mobile phones have become the gateway to our bank, share dealings, health records, and in fact every item of sensitive data in our lives the risks are perceived to be ever greater of letting them fall into the wrong hands. Particularly in Japan where the use of the mobile phone is more advanced than in the US or Europe, phones can be used for payment of bills, move funds around bank accounts, pay rail and bus fares. Indeed the mobile phone is becoming the mobile wallet.

It does raise an interesting concept though.

As the world’s reserve of metals becomes ever smaller, to what extent can we access those already used and available in manufactured goods? Certainly we have only scratched the surface so far and the high prices of all metals will encourage this resource to be pursued much more vigorously in the future.

–Stuart Burns

A recent Bloomberg article suggested that although tin prices are currently strong they are expected to come off in the short term due to slowing domestic Chinese demand. The same article states half the tin  consumed in China is used in electronics soldering, a previously robust area of value add growth for Chinese companies. But a combination of rising wages costs, softening demand due to lower exports to the west and the appreciating RMB have significantly reduced growth prospects. China’s quarterly trade surplus shrank for the first time in more than three years from January to March due to falling exports. Many small electronics factories in the southern province of Guangdong were being closed after China’s new labor laws mandating minimum wages and setting limits on over time raised production costs.

China’s domestic tin prices are starting to drop lower than world prices as demand softens and rising production pushes the market into over supply. Although China became a net importer of tin this year, following the imposition of a 10% export tax this January, higher export prices could over come this and encourage exports again. Many say the retreat of China as a major exporter is the primary reason for the current high world prices.

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Zinc is one of few commodities that appears to be bucking the trend of relentless price increases. The metal has come off from USD 4260/ton last year to below USD 2300/ton this year driven by a perception that supply exceeds demand. Where will it go from here?

Zinc consumption has been increasing at something like 3% globally although as you can imagine, demand has not been uniform. China, the world’s largest producer of concentrates (27%) and of refined Zinc (30%), has increased consumption by 15.2%, ahead of India at 7% and Europe 2.3% according to the International Lead & Zinc Study Group, more than off- setting a drop in demand from the USA, Japan, South Korea, Taiwan and Australia. At the same time, production has been rising at 5% wiping out a deficit of 352,000 tons in 2006. Consequently, world stocks have been steadily rising from 459,000 tons in 2007 to over 700,000 tons this year, according to www.abareconomics.com. Mirroring this, LME stocks have risen 46% year on year from 89,000 tons to 130,000 tons today.

New mines came on stream last year in Peru and old mines were re-started in the US. In addition, decisions were taken on new facilities in Finland and Mexico which will add another 200,000 tons per annum of production this year. New production facilities at Vedanta Resources, India and elsewhere have also come on stream this year. So production is up and consumption is slowing; does that mean prices have further to come off? Probably not, it looks like this supply balance has been factored into the current prices and all other things being equal (no general collapse in commodity prices, no flight of investment funds, major power shortages or strikes ” a big list!) prices will most likely stay around current levels for this year and well into next.

The China National Development and Reform Commission has set out a number of standards that facilities will be required to meet in the future which could reduce production in China and/or raise costs. Price support is seen more from production restraints and threats than a belief that demand is going to suddenly improve. Zinc is used in many applications but the principal ones, galvanizing steel and alloying with copper both have high exposure to the automotive and construction industries. No surprises then that demand is down in the West and up in Asia. We don’t see the situation improving this year in the West but there could be some cooling in the Chinese and Indian economies as demand softens in Europe and continues subdued in the US. Although we expect demand in China to remain robust it will most likely come off the highs seen last year and during the first quarter of this year. We expect Zinc to be trading in the USD 2200-3000/ton range this year rather than testing the USD 4000/ton levels of last.

–Stuart Burns

There was a time when if the price of a metal doubled in a year it would be the stuff of headlines. Not only trade journals, but newspapers and even TV channels would post features on the dramatic price rise and the ensuing calamity that was likely to follow ” whether it be a crash in the price or consumers being forced out of business. Nowadays we appear hardened to trebling or even quadrupling of prices in a single year such is the bull market that has prevailed this decade. So as the price of manganese has doubled  in the  last 12 months maybe we can be forgiven for not having taken too much notice. Read more

There is an interesting debate going on in the aluminum world that is quite probably being mirrored  across other metals categories, namely – which way  will the price for semi finished metals go the balance of this year? Aluminum semis prices are driven largely by the ingot price but also by the premium mills can charge for the particular product ” plate, bar, flat rolled, sections, foil, etc.

First, the ingot price. Read more

Shipping Lines use the same principles of supply and demand to judge freight rates as does any other business. Typically a
route in one direction is more popular than the reverse. For example containers travelling from China or Europe to the USA, bringing in finished goods, commanded a higher rate than the same containers being sent back to those overseas markets.

Shipping lines are keen just to re-position the container back to where the demand is greatest ready for the next load and
would happily take low value cargo (at low rates) like metal scrap just to cover the cost of returning the container. The US
demand for imports over the last 10 years has made this a steady one way bet, until about 12 months ago according to the the Wall Street Journal. Read more

It was meant to come to market in 2006, then in 2007 and with much anticipation in Q1 2008. I speak of course of the NYMEX HR steel futures contract. But the start date has been put back yet again. Meanwhile the LME steel billet contract has got off to a quiet but solid start in London back in February. It will  go live later this month. Further shapes and grades are being added as the contract gains popularity but meanwhile North American buyers will have to wait a while longer for the proposed start date of their HR coil contract. Read more

With both global prices and sales of steel steaming away over the last twelve months, the sometimes overlooked stainless market has been quietly contracting. The market contracted by 2.9% in terms of production last year to 27.6 million tons according to the International Stainless Forum. But the reasons for the decline – a sharp fall in nickel prices, appears counter-intuitive to us. We expected the fall in stainless demand in the second half of 2007, due to the rise in nickel prices in the first half of the year, as manufacturers switched from stainless to other products. There is a lag in these situations and production is hit only 6-9 months after the price spike. Western Europe and Africa reported a 13.3% decrease in stainless steel production to 8.7 million tons during 2007 while the Americas reported a 15.2% decrease in production to 2.5 million tons.

Asia, on the other hand, saw stainless steel production rise 6.3% to 16 million tons in 2007. China is now the world’s largest producer. Its production rose 36% to 7.2 million tons. While at the same time, the Chinese government has actively tried to curb exports of semi finished steel products by adjusting the incentives and penalties for exports. The result has been a decrease in exports of semis and an increase in exports of stainless containing components and products. Read more

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