Author Archives: Stuart Burns

Who would have thought the UK  which sits at only fifth in the world league tables based on nominal GDP and for which manufacturing only accounts for 1/6th of national output could also hold the position of the world’s largest arms exporter in 2007? It may explain why the UK still has a robust metals distribution market; the defense industry is a large consumer of high quality metals. The UK won $10b of export orders last year giving it 33% of the world market and with it there will be a multi-billion dollar demand for specialist steels, aluminum, titanium and other exotic alloys. Even averaging over the last five years Britain is second to the USA at $53b relative to the US’s $63b and way ahead of the next placed Russia at $ 33b or France $17b. Orders were spread over a wide range of product areas too. These areas include typhoon jets for Saudi Arabia, warships for Oman and the Caribbean plus extensive joint venture engagements with US defense contractors for the US market. Despite having only the 27th largest armed forces, Britain has the second highest military expenditure in the world, due to the high reliance on expensive advanced technology. Arguably Britain  is well placed to support a large domestic military industry. With the weakness of the US dollar this may represent yet another export opportunity for US manufacturers, already Britain’s largest partner in defense projects.

–Stuart Burns

The Future for Zinc Prices

by on
Style:
Category:
Non-ferrous Metals

Driven by high prices in 2006/7, many miners poured money into new mines or expanded existing ones. Prices rocketed as the world market moved into deficit, but galvanized and alloying demand slackened just as new mines came on stream. As a result, the market went into over supply last year and prices have come steadily down in response. CBH Resources has recently spent $85m developing their Endeavour lode in eastern Australia, boosting production from 1.05m tons this year to 1.3m tons next year whilst at the same time reducing man power by 33%. The net result will be a much lower cost per ton of product and the ability to ride out the down turn in the market. Brave but prudent, one may say if prices stay permanently low, but the belief by some in the market is prices will rise again in the medium term. BMO Capital Markets predicts the prices will bottom at around $.85/lb through 2009 even as production rises at 9% this year and 7% in 2009. They say that prices will be supported by high Capex and energy costs. That may indeed limit the ability of  some producers to follow the market down but the reality is there are high and low cost producers —  so in a period of over supply as we will have for the next few years, the price will be set by the low cost producers who can still supply as prices decline. Unless there is a dramatic pick up in the galvanized steel market, we can’t see Zinc prices bouncing back anytime soon. Indeed, the next move may be further down.

–Stuart Burns

The Next Step for Nickel

by on
Style:
Category:
Non-ferrous Metals

Last week we read of the explosion at Apache’s massive gas handling plant at Veranus Island about 60 miles off Australia’s northwest coast. The disruption to critical gas supplies will take four weeks to bring back on stream and meanwhile deprive numerous metal processing and mining operations of energy supplies when they are all operating at maximum capacity to meet demand. Then this week, BHP was forced to close down the furnace at its Kalgoorlie nickel smelter nearly a year early because it has become unsafe. The furnace has been running flat out to meet demand and the strain has taken its toll, the next major maintenance program was not planned for another year from now. The closure will halt production at BHP’s Kwinana refinery for at least four months and cut global supply by almost 2%. It is estimated the shutdown of Kwinana will cut BHP’s nickel sales by 28,000 mt over the next 12 months, total sales in the year to June 2007 were about 101,000 mt from Kwinana. BHP’s share price fell 4.4% while nickel prices jumped nearly 6% this week to US$24,585/mt, before easing yesterday. Traders in Sydney have commented they see the price going much higher and wouldn’t sell stocks under US$ 25,000/mt.

So what’s the reality — is nickel heading for another spike driven by supply side issues? Our take: no. The nickel price has drifted off from a record high of US$51,800/mt a year ago due to falling demand from the stainless steel industry that takes some 75% of production and new production coming on stream which has pushed the market into a sizable surplus. The problems at Kalgoorlie are not good news for BHP or for the Kiwana refineries contract clients but the market as a whole will be able to meet the shortfall.

–Stuart Burns

Mr Agarwal would probably like to think so and may yet prove to be. Having established his largely non ferrous metals focussed industrial group Vedanta Resources  in the UK via a London listing and expanded internationally into Africa and more recently the USA (his Sterlite subsidiary purchased the assets of Asarco Copper for $ 2.6b following that company’s liquidation) Mr Agarwal can be said to be sitting on a global metals business valued at some $6b. Interestingly he is now turning his attention back to his roots with plans for investments of up to $20b in non ferrous metals mining and refining operations and power plants.

Demand for Copper in India is growing 8-10% a year, aluminum 10-12% and zinc 13-14%, Vedanta  said. India produces 89 minerals and is one of the world’s most resource-rich countries, ranking third in the production of coal, fourth in iron ore, sixth in Bauxite ” used to produce aluminum ” and 10th in refined aluminum itself. However, due to insufficient investments in mining and a limited role for the private sector, less than 10% of the Indian land mass has been explored, Citigroup wrote in a recent report. Read more

When I was a science undergrad, I would read time and again how coal reserves were sufficient for 200-300 years of demand. So why do we have what appears to be a world shortage and prices rising exponentially year  over year?

It’s not what’s in the ground; it’s how readily you can get it out and move it. So if demand temporarily outstrips supply, it’s just a matter of extending existing mines or  investing in  new ones and building some more coal carrying vessels, right? Maybe not, according to a  report in purchasing.com  which made the rather alarming prediction that prices would continue to rise, possibly double, due to dwindling supplies. Read more

Back in February we wrote about funding that was made available to look into the anti microbial properties of Copper Alloys as a positive new development for the copper alloys industry. We are pleased to report that the EPA has now given its approval to the public health claim that surfaces composed of certain copper alloys can kill off life threatening bacteria.

For the scientists among us this happens because copper releases ions that kill bacteria according to research  done at the University of Chile in Santiago. The copper ions separate on contact with bacteria and cause irreversible damage to the bacteria cells. Basically they die! The research was carried out on the wide spread and prevalent killer MSRA – often termed the super bug because of the difficulty that hospitals have in removing it from their environment and its resistance to many antibiotics. According to the American Medical Association, MSRA caused 18,650 deaths in US hospitals in 2005. If this is correct, it would make staphylococcus infections a more likely cause of death than AIDS that year.

It should be stressed that copper alloys for door knobs, counter tops, railings and intravenous needles (just some of the uses being suggested by the industry as suitable applications) would be a supplement to standard infection controls not a replacement for them. But for the industry it represents possibly the largest new market for the metal in the last 5 years. With demand from the building industry down dramatically and many other industries flat, both producers and distributors are hoping there will be early  acceptance at least in the refit market. Our understanding from the distributor market is that it has been a challenging first half for copper alloys with demand down some 20%  from last year. The EPA’s approval may have come at just the right time to create some much need new sales opportunities.

–Stuart Burns

Platinum: The Forgotten Metal

by on
Style:
Category:
Precious Metals

Platinum  rarely garnishes as much attention as gold and silver,  but since the beginning of this year, it has outperformed both in terms of price increases. Gold has gone up 5% and silver 13% —  both more of a US dollar  currency play than driven by any fundamentals — while platinum has risen 31% on the back of a tight supply market. Read more

A recent report in Purchasing.com was  both contradictory  and enlightening. Analysts at Commerzbank are predicting that energy costs will stay high, leading to higher aluminum prices. Energy accounts for 40 percent  of the cost of primary aluminum, and new capacity is growing at only 4.5 percent  as new projects are hampered by unprecedented rises in the cost of energy (for example,  Rio Alcan’s smelter project in South Africa). Yet in the same Purchasing.com article, it predicts that prices will fall from an average of $2879/mt this year to $2659/mt through 2011.

Energy influences the cost of aluminum manufacturing more than almost any other major metal, so new projects will be influenced by the cost of energy contracts. Today, the average break even point is about $2000/mt for most smelters. However, following growth in new capacity of 12 percent  last year, there is no shortage of primary metal. While power costs are clearly an influencing factor, we see the softening in Western demand and the large global stocks as bigger influences.  The fall in the U.S. dollar has influenced all commodity prices. If the currency were to stabilize this summer and begin to firm on the back of possible February rate rises towards year-end, we could see aluminum prices coming under pressure a lot sooner than 2011.

–Stuart Burns

In an interesting article in the Wall Street Journal Honda has revealed how rising raw material costs are influencing long term strategic decision making at the firm.

Honda have been reviewing  its strategy for India where Tata Motors announced their $2500 Nano entry level car earlier this year. After 20 years of  manufacturing in the Indian market, Honda has more than half of the country’s 8m annual sales of motorcycles/scooters and 30% of the premium market for cars. So they have a lot to lose if they get their market positioning wrong. To put this in perspective their most expensive motorcycle, the Unicorn, sells for $ 1,400 yet its cheapest car the Civic sells for $16,500. To bridge the gap Honda is introducing a lower cost model based on the Fit but it will not be less than $10,000.

Apparently Honda has looked at the concept of producing a competitor to the Nano but they do not believe it can be done while still maintaining quality. Commenting on the whole concept of Tata’s Ëœcar for the price of a bike’ approach Honda  is quoted as saying the economics of producing a low cost car would be challenging, especially with raw material costs rising sharply. It will be interesting to see how long Tata manages to keep the Nano at $2500 before rising raw material costs start to push up the price.

–Stuart Burns

Comments from Detroit’s  Big Three in the Financial Times appear obvious in the face of oil and fuel prices doubling. The  Big Three and all U.S. car producers need to adjust the mix of vehicles from minivans and SUVs to smaller cars. Well, no surprise there. That has been obvious for the last year. Sales of small cars are rising in the U.S., while sales of pick-ups are declining.  Car sales increased from 53 percent  of all vehicle sales in April to 57 percent  in May, the highest portion  in 12 years. Small cars like the Yaris and Fit increased from 8 percent in May 2007 to 25 percent  in May 2008.

The problem in Detroit is that they make an average $9000 pre-tax profit on a pick-up and only $3000 on the average car.  The pick-up is a larger vehicle and costs more, so there is more room to pad the price. Buyers see a large vehicle and expect a large price (current massive discounts not withstanding), whereas buyers see a smaller vehicle and prices are intrinsically more competitive. Read more

1 309 310 311 312 313 315