Articles in Category: Commodities

For years tungsten supply and demand used to hang in a balance if you will. This widely used but often overlooked metal featured as a significant cost inflator. Tungsten has been considered a strategic metal due to its use in cemented carbide parts for wear resistant applications such as drilling, mining and metalworking. In addition, it is an important constituent in heating and lighting elements, welding, the production of super-alloys and armor piercing ammunition. Consequently tungsten has been considered a metal of strategic importance for many western economies but now other countries are waking up to the rising demand and limited supply situation. Notably China – both the world’s largest producer and consumer – has imposed export taxes on tungsten concentrates and refined metal, reducing exports and increasing imports. Smaller Chinese mines have become depleted and the authorities are seeking to secure resources to meet growing domestic demand. Read more

Regardless of which newspaper or journal you read, it seems to be one story after another about the relentless record commodity price highs often in the face of fundamentals that suggest the market should be going in the other direction. We feel tin may be one metal that has peaked and will be on its way down this year after prices have doubled over the last 18 months.

Tin rose from $12,000/ton to $16,000/ton during 2007 only to power onwards to nearly $21,000/ton in the first quarter of this year. Prices have been inflated by speculative money but supported by low inventory, a reduction in Chinese exports following the 10% export tax applied from Jan 1 and production losses due to bad weather which turned China into a net importer this year.

Steelmakers are looking to boost demand  for tin cans following years of losing out to aluminum but this isn’t where the recent increase in western demand has been coming from. The 2% increase in consumption seen in the USA during 2007 came mostly from  the use of tin as a substitute for lead in solders due to fears of lead toxicity and to meet RoHS compliance.

Developed world demand is set to soften this year so with the exception of speculative funds, support for prices will come from restrictions in supply. China’s severe winter certainly had a huge effect on the country’s trade balance for tin, resulting in a 16% fall in production as we mentioned above but production has now returned to previous levels. In addition, Indonesian supplies have been reduced by a government crackdown on illegal mining as has the government of the DRC (Democratic Republic of the Congo) who suspended all mining in the Walikale mining sector. Of course the intent in both cases is not to permanently halt all exports – merely to ensure they go through legal channels so the government can extract tax revenues. Control is the first step and this may continue to hamper exports for the rest of the year.

Analysts differ on which will carry the day, reduced demand or restricted supply. Our take is we will not see prices crash. Demand for tin (as with most metals) is sufficiently robust to support high prices for the foreseeable future. Indeed many have argued, that current prices levels are where all metals should be and the low prices of the 1990’s were the exception and ultimately unsustainable. Tin though has probably been over done and, like nickel last year, is probably due for a correction and retreat to more sustainable levels later in the year.

–Stuart Burns

It is hard to believe that we are coming up on the close of the first quarter of 2008. What a quarter it has been! We thought it would be fun to review our predictions from the beginning of the year and grade ourselves. At the same time, we will chime in with what we believe is in store for metals buyers and traders in Q2 and beyond. In case you missed our original predictions, you can find them here. Read more

What a difference a day makes, or so the song goes. In this case it has been a couple of months since our last Cobalt post on January 16. At that time, Cobalt had reached $40/lb. and was widely tipped to top $50/lb during the year ahead. Here we are just three months into the year and Cobalt is already at $52-53/lb in Far East sales. But in that article, we also called out the prospect that prices would ease as the year unfolded and we thought now would be a good time to see if there are any early signs of an end to the bull run.

You will recall prices were being driven by both a tightness of supply following the Democratic Republic of Congo’s moratorium on exports and unprecedented demand from aerospace, power generation and rechargeable batteries for hybrid cars, cell phones, I-pods and laptops. In theory the fundamentals of demand have not changed greatly although temporarily the market does appear a little quieter and the shortage of supply is still much the same. Read more

We have written a lot over the last few weeks about the macro-economic situation the world’s metal markets find themselves in so it came as pleasure to connect with an old friend of ours Dan Kendall, President of ABC Metals to hear about life at the sharp end. ABC is a distributor of high quality precision slit non ferrous metal products with distribution centers in the mid-west and Texas.

Distributor inventory levels are at all time lows. Dan had a wonderful quote from the CEO of another distributor who said, “You could shoot a gun in our warehouse and not hit any metal”. Faced with falling demand and rising prices, distributors have stopped buying. Inventory levels are dramatically lower and only niche players with long running contracts and sophisticated cost hedges in place are managing to still grow their businesses. ABC was up 27% last year. Read more

I won’t pretend that there aren’t times when the global metals markets perplex me. Take the last couple of months. The US has clearly been heading for a recession, mild or strong remains to be seen but certainly it’s going to get worse before it gets better. Europe or at least southern Europe is looking decidedly sick. That once famous construction led boom [bubble] does appear to be just that. And the economies of the Club Med region and Ireland are all showing signs of strain. The UK will not be far behind as a combination of rising tax levels and falling property prices takes their toll on consumer spending. Lastly Japan is on the brink of a recession as the rise of the yen chokes off whatever mild growth manifested itself last year. Only the BRIC countries are showing robust growth fuelled by rising living standards, young demographics and generally sound economic management (I’ll stay off my soap box on that one, so far so good). Yet, and here is the source of my frustration ” contrary to the sound logic of supply and demand, the metals markets, instead of a steady easing of prices as demand in the major economies slows, have been rising strongly during February when common sense suggests global growth will be much lower in 2008 than it was in 2007. It reminds me of one of those ore trains with an engine at both ends; one pushing, one pulling. In this case the engine of supply/demand fundamentals has decoupled and the only driver of the train is speculative. Read more

While metals  such as  gold and copper have recently hit record highs, the future outlook is uncertain —  particularly since oil and the global economy are adding to the volatility of the metals market.

Always considered the safe haven of metals, gold reached a record $992.95 an ounce earlier this week. Soon, it could even hit $1,000 an ounce. Who is to say, however, if it’s a decent time to jump into a deepening pool of gold wealth? This is a terrific time to sell old gold jewelry and make some bang for your bling, as Lisa reported in a past entry, but  the investment arena isn’t as certain.  With prices that jumped 52 percent since the end of 2006, the oft-promising metal could be a high risk at this point. Then again, the dollar could be pushing gold even higher in value next week, when the U.S. jobs report, which is expected to be weak, is released against the backdrop of the U.S. dollar dropping further in value against the Euro.

In addition to the weak dollar, fresh highs for oil look set to entice further anti-recessionary/inflationary hedging towards gold and will ultimately push the metals higher, Bullion Desk analyst James Moore explained in a recent Forbes article.

caratgold288.jpg

Read more

Though Hamlet found himself in extremely dire circumstances, manufacturers throughout the world have faced a similar question, to raise prices or not? Certainly a few years ago, the answer to that question, in the automotive industry, was a resounding “no”. In other words, an OEM would never accept a price increase from his supplier, even if the supplier documented the cost increases from its suppliers. That began to change when steel surcharges really bit into supplier margins (and perhaps explains why so many automotive suppliers are no longer here today). We have personally seen many companies (both large and small) successfully implement price increases in rising commodity markets.

Reuters hosted a manufacturing summit in Chicago at the end of February. The summit featured the CEOs of many top manufacturing firms. They each spoke on various topics. We were most intrigued by the comments made about raw materials. In this audio file, Timken CEO Jim Griffith talks about how they finally did pass down cost increases to their automotive customers in the neighborhood of 10-20%. Griffith continued by saying that they live on both sides of the same coin, their company is profitable because of rising steel prices. But, they have not been getting adequate pricing for their products from automotive customers. If they don’t, “it’s the end of the road.” Read more

Sorry for the rhyming. I’m in one of those moods…

Buried in the bowels of it’s Sunday edition, the Wall Street Journal had an article on how Rio Tinto Alcan became the subject of an anti-trust investigation filed by the European Commission. According to the article, the EC “charges Alcan with having abused its dominant position by ‘tying its dominant aluminum smelting technology with handling equipment sold by Alcan’s subsidiary ECL.’ ” It’s a major accusation as the punishment for Alcan, if found guilty, could be 10% of company revenues. The EC believes Rio Tinto Alcan has acted uncompetitively because the concern is that as the biggest aluminum producer in the world, Alcan and as owner of ECL, a major producer of equipment used in the aluminum industry, innovation would be stifled. Specifically, the EC has accused Rio Tinto Alcan of monopolistic behavior.

Bloomberg had a more in depth analysis pointing to the contracts Alcan has with several customers to share aluminum smelting technology. In the contracts, Alcan prevents companies from purchasing pot tending assemblies from other manufacturers besides ECL, its wholly owned subsidiary.

A couple of weeks ago we wrote about the correlation between high commodity (in this case metals) prices and the number of M&A transactions within the sector. Let’s hope the trust busters will be watching these transactions closely becauses the risk is only going to increase as metals industries continue to consolidate.

–Lisa Reisman

Forget oil, coal prices have been going through a bull market for the last year with the curve taking on hockey stick proportions over the last four weeks. Spot prices for thermal coal used in power stations reached $130/ton last week, a 37% increase from the beginning of the year following a 73% rise in 2007. Power station prices reached $145/ton CIF North European seaports in response to severe coal production and shipping constraints in Australia, China and South Africa, three of the largest coal producing countries. Vessels queuing at Australia’s Newcastle port face a month delay and production has been hit by bad weather in Australia’s NW territory and China. Price pressures are exacerbated by critically low inventories according to Goldman Sachs.

All eyes are now on the 2008 annual contracts which, like the iron contracts just concluded, will be under pressure from the high spot prices to show another dramatic rise. Goldman Sachs are predicting thermal coal to rise to $110/mt starting in April, when the new prices come into effect. This represents a rise of 98% from last year’s $55.65/mt.

China has switched from being a coal exporter of 83m tons five years ago to a coal importer today as power demand has rocketed and new coal power stations can not be built fast enough to meet demand. Vietnam, China’s largest supplier, plans to reduce exports by 32% this year due to rising domestic demand for power and   coking coal. South Africa, a net coal exporter will have to import over 22m tonnes this year to replenish depleted stocks. Australia cannot increase exports because of port congestion; new investment is planned but will take a long time to reach fruition.

Cement producers (the third largest user after power and steel) outside Asia are switching from coal to petroleum coke as a cheaper alternative, an option not open to the steel industry.

Meanwhile the steel producers are quickly pushing through price increases on the back of rising costs. Like thermal power companies, the steel industry buys the majority of its high quality coking coal on longer term agreements, usually negotiated annually. Prices have more than doubled this year to over $200/ton but the effects won’t kick in until May-June just as several of the world’s economies may begin to show a softening of demand.

With oil and gas prices high and coal rising fast, do not expect any respite in electricity costs this year. The cost of power may not immediately hit the big western metals producers who buy their power on longer term contracts but it will certainly affect producers in developing countries where contract terms tend to be of shorter duration. This will hit the small to medium sized metal smelters in Asia, Africa and South America particularly hard. These producers have been cushioned from rising power and ore prices by rising refined metal costs over the last few years but the relentless surge in power and ore prices may well meet a stagnant refined metal price if the demand curve flattens towards the end of this year.

What will that mean for metal prices? It’s anyone’s guess but there could be a lot of pain out there if high power prices agreed to now can not be sustained with high metal prices as the year unfolds.

–Stuart Burns

1 452 453 454 455 456