Articles in Category: Commodities

I don’t know about you but one of the best parts about traveling (besides a couple of nights sleep without my 2 year old wake-up call) is the fact that you get “plane time.” Back when I worked in Big 5 consulting, this time was spent doing one of two things….catching up on sleep or cramming to get some deliverable completed before the plane landed. After a quick cat nap, however, I had the luxury of reading the Wall Street Journal (not cover to cover mind you) but I did get to read the sections that I never read in the on-line version. Though there was a great front page story on the mining and metals industry, “Giant Mines Scramble to Cut Output,” I felt we have covered most of what that story contained previously. So on to the op-ed page and lo and behold way back on page A19 I saw a piece with an intriguing title, “To Prevent Bubbles, Restrain the Fed.” Read more

Just 12 months after removing many of the  VAT rebates on exports designed to discourage the export of lower value added products, China is looking to reinstate them  starting December 1. As part of a wider program of tax changes reported by Reuters, the government is raising domestic  VAT from 13 to 17% on all minerals, including iron ore, alumina and other metal ores. At the same time,  it is  reinstating rebates to promote exports of semi finished products like aluminum flat rolled and extruded products, and removing export taxes on hot rolled steel, sections and rods. The approach is designed to try and squeeze smaller producers out the market who can’t finance the cash flow impact of the higher  VAT but support the larger more efficient producers by helping them boost exports in the face of a dramatic fall in domestic demand.

This will not be welcome news for producers in Europe and North America, already under pressure due to plunging demand and falling prices. With the US dollar so strong expect to see a marked increase in Chinese steel, aluminum and other semi finished metals in the US market from the New Year. Followed no doubt by the producers tried and trusted anti-dumping claims as they fight to keep prices up and competition out. Unfortunately with a democratic president and congress they may get a sympathetic ear, which will deprive US manufacturing of the stimulus of lower prices and reduce competitiveness relative to their peers around the world.

–Stuart Burns

After the monumental falls in metal prices during October and the bounce back in prices last week, many buyers are asking has the market hit the trough and are we seeing the beginning of a new rally? Some metals are certainly in short supply. Both tin and lead have supply side constraints that lend support to prices. In addition, many metals are below their marginal cost of production. If it were not for the wider economic situation, buyers could not be blamed for looking at the supply fundamentals and concluding that at these prices, there is only one way for them to go. Indeed with such volatility ” copper has been trading in a $1000 range over the last week or so ” some buyers are feeling almost a state of panic that the market will move strongly higher and they will be left exposed.

On the other hand the LME last week had to correct its closing evaluation prices for nickel options because the volatility exceeded the limits the system had been set up to handle. But it wasn’t just nickel. All the metals swung widely – both options and fixed contracts – from the lows hit in the third week, prices bounced between 34% and 49%, only to fall back again at the end of last week. Read more

In January, iron-ore mining was a booming business. Prices were rising and expected to soar, and steelmakers with their own iron-ore mines hit payday.

Unfortunately for major iron-ore miners, the success was short-lived.  Iron-ore miners  can expect  to issue some major price cuts for steelmakers  next year. For those following the metals market, the timing is ironic, since we recently reported Vale’s proposed price hikes. Just two months ago, the company expected price increases to have a positive effect on overall revenue, but those plans were clearly  dissipated as worldwide steel production slowed.

Photo: BHP Billiton loading facility in Australia.
Credit: Reuters.

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The recent  recessionary squeeze, arms tightly wrapped around scrap metal dealers, isn’t pulling back anytime soon. As demand and prices fall in most metals markets, scrap dealers find themselves drawn in different directions, unsure about the next step. To sell, or not to sell? That’s the unfortunate question. We’ve already discussed the trader’s dilemma, but there’s no simple answer for these issues.

A metals surplus, combined with a dwindling metals appetite from China and other countries, has hurt the once-booming scrap industry. “In the last six weeks, scrap steel prices have fallen nearly 60% to about $400 a ton,” the Wall Street Journal reports. “Prices for aluminum scrap dropped 33%, copper 25% and nickel about 15%.” The article includes a quote from Peter Marcus, metals analyst for World Steel Dynamics, and his words should worry scrap dealers even more. “We aren’t near the bottom yet,” he says. Read more

Rising five percent yesterday, the future for palladium already looked promising, reaching a session high at $177.50 per ounce. This morning, however, the precious metal rose even higher. While several other metals face a long-lasting freefall, palladium can claim a more optimistic outlook with its recent 10 percent rise. As the dollar weakened and oil gained, palladium met a two-week high today at $193 per ounce.

Like many other metals, a forecasted decrease in demand hurt palladium over the past three months. Now,  Reuters reports, “the metal, which has shed around 50 percent of its value in the last three months, is benefiting from a perception the sell-off has been overdone, traders said.”

Earlier this morning, gold and silver prices similarly rallied, rising 3 percent and 6 percent, respectively. Platinum fared well, too; the metal climbed six percent to a session high yesterday, despite hitting five-year lows this Monday.

–Amy Edwards

Asia’s long held desire to develop a commodities exchange to rival London, New York or Chicago has hit the buffers with the credit crunch. As the power house of commodities consumption it would seem obvious to many, particularly in Asia, that the region should have it’s own hub trading not just metals but oil and agricultural goods too. Indeed  though Europe’s metals market was developing in the coffee shops of London, Japan had the first commodity exchange trading rice in 1697 in Osaka. Since then Japan has developed a well respected but limited commodity exchange TOCOM in Tokyo but it has always had too much of a retail focus and lacks the liquidity to attract the large investors.  

Kuala Lumpur in Malaysia has enjoyed a place in the physical trade of tin via their Penang exchange though Hong Kong and Singapore both have active stock markets with aspirations to develop metals exchanges. The Hong Kong Mercantile Exchange HKMex has had plans to start oil trading from early 2009 and metals later in the year, hoping its well regulated markets and long established position as a hub for physical traders  combined with  its position between China and the rest of the world will give them an advantage over their main rival Singapore. Read more

Last week, Stuart offered a thoughtful piece on metals prices and when to buy. The gist of that article really had to do with the demand numbers inside China. Stuart predicted that the Chinese government will do everything in its power to stimulate growth, primarily through infrastructure development to keep that growth alive mainly to avoid civil unrest. We know China has been growing by over 11% a year, but how bad is single digit growth? Read more

Our affiliate blog site, SpendMatters, recently published a white paper on training and certification options for sourcing professionals. That paper, available here for free download reviews three certifying organizations and describes at a high level, the differences in the various certifications, the specific skills sets each emphasizes and the relative cost benefits. The report is interesting for metals sourcing professionals for a number of reasons.

First, as companies saw their metal purchase spend explode during the first half of this year, training offers a means of picking up additional skills to facilitate the next round of cost savings. The build-out of total landed cost models for global sourcing initiatives or exercises and skills around applying risk reduction techniques to commodity spend can be extremely useful in volatile commodity environments. According to a press release  on the report, only 10% of procurement professionals either have a formal degree in supply chain management/supply management or have a certification. In addition, many of these programs are available via on-line/distance learning which helps to minimize costs and expand the number of professionals within a company that can participate.

If your firm is evaluating training options, ask specifically what skills and exercises can your firm gain through participation? For example, do any of the programs include training around commodity hedging and forward buying? Do they discuss how to effectively use price indexes? Do they teach professionals how technology can help them gain the next round of cost savings? These are just a few questions to consider.

–Lisa Reisman

Robots like the fictional WALL-E could someday  uncover lost treasure.

True or false: U.S. landfills could provide enough steel to equal four full years of American steel production. The surprising answer? True. Already consuming approximately 100 million metric tons of scrap steel each year, the U.S. steel industry recognizes that landfill mining is estimated to uncover more than 400 million metric tons of steel. Further, some experts estimate that there’s more aluminum in landfills than the concentrations in iron ore, and trashed computers could provide more gold, copper and mercury. Landfills, it seems, are evolving into gold mines.

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