Articles in Category: Commodities

Nothing seems to rattle the tail of a manufacturing organization quite like being asked to participate in a reverse auction. But it is our contention that reverse auctions within the manufacturing sector are way down according to a comment in this article which appeared over on Spend Matters a little while ago. There are several comments in the post worth reading. But I think in context of metals raw materials, semi-finished materials and possibly further worked products containing metals, auctions are down and possibly out but not necessarily for the reasons you might suspect. Read more

One day, precious metals are gaining; the next day, they’re falling, and the rise and fall of the dollar is blamed.

Yesterday, the dollar rebounded after record lows against the Euro, and precious metals prices finally took a hit. “Silver for May delivery dropped 18.5 cents to $18.015 an ounce on the Nymex, while May copper lost 7.7 cents to $3.9230 a pound,” the AP shared, while similarly, “Gold for June delivery fell $5.60 to $931.90 an ounce on the New York Mercantile Exchange, after earlier falling as low as $925 an ounce. Gold has gained 7 percent this year but has struggled to return to levels approaching its all-time high of $1,038.60 an ounce, reached March 17.” Read more

It may be illegal (and so is not even officially admitted) but it appears pretty obvious that the Chinese authorities are playing hard ball in their iron ore price negotiations with Rio Tinto and BHP Billiton. Vessels destined for the spot market require licences to discharge, not normally a problem in a country that imports some 40% of its iron ore requirements but only 35% of which are supplied at the long term contract price.

China concluded a contract price with Vale, the world’s largest producer from Brazil, of about USD 76/ton for this year but spot market prices are over USD 200/ton. Rio and BHP are holding out for higher contract prices in their annual round of negotiations on the grounds that it costs less for the Chinese to ship from Australia to China than it does for their Brazilian competitors shipments from Vale. Although the contracts are based on the FOB port of export, the Australians are trying to take advantage of the lower freight rate they know their clients pay when they buy Australian ore. Both Brazilian and Australian quality is much better than lower grade Chinese domestic or imported Indian iron ores, both of which trade for over $200/ton on the spot market in China. Read more

Broken glass, muddy footprints, and writing on the wall: Signs of breaking and entering, theft and vandalism, are often common after a house is foreclosed. An article in the Wall Street Journal last week shared a troubling tale of discontent, a report of  old owners  trashing their houses for “revenge” after foreclosure. To persuade homeowners to leave their foreclosed houses in decent shape, many lenders and their agents have offered to pay some homeowners hundreds or even thousands of dollars. It’s not just a settlement; it’s a bribe, and sometimes it works, particularly in more affluent neighborhoods. In most cases, this reward would be much higher than the amount of money a homeowner could receive selling small pieces of scrap metal on the black market. However, a recent article from Reuters suggests that, “In areas hit hardest by foreclosures … copper and other metals used in plumbing, heating systems and telephone lines are now more valuable than some homes.” This article describes the recent outbreak of copper thefts in several foreclosed and abandoned homes in the U.S. With the red metal growing hotter in price–in the past three years, copper prices have seen a 400% rise–ever-increasing thefts exploit the metal  around the world.

It’s not always former homeowners that walk out with an extra gift in hand; the incentives from the price of  this commodity make foreclosed houses ripe for thefts from anyone with knowledge of the subject and an interest in shady dealings. Homes in Brockton, Mass., for example, have been ripped apart by thieves in search of copper, brass, and aluminum. The metals are quickly sold to scrap metal traders and sent overseas. Read more

I love articles that really make you think. So I particularly reveled in an article that appeared last week in the Financial Times claiming, “new research shows demand from industrial users has spurred a price boom in a range of metals.” I immediately double checked the date of the article to make sure it wasn’t some April Fool’s joke (it wasn’t). I’m assuming that this finding was to contradict the widely held notion (including that of the editors of this blog) that speculative investors and “the stupid money” is what is causing this metals commodity boom.

The article highlights a number of different pieces of analysis. To wit: iron ore and cobalt have risen faster than copper, which is traded on exchanges, according to Lehman Brothers. In addition, ferrochrome, cobalt, molybdenum, magnesium, rhodium, hot rolled steel, iron ore and alumina are all traded over the counter amongst traders, producers and consumers. It is these metals in particular that the article points to that are not easily accessed by speculators and thus the 598% price increases for non-exchange traded metals far exceeds the 246% price ascent for the exchange traded metals. The metals were analyzed from January 2002 to early this year. The article claims that ‘supply and demand factors, as opposed to financial flows are behind the boom in prices’. Read more

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

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