Articles in Category: Ferrous Metals

My learned colleague Stuart mentioned to me yesterday that he saw an article in a trial subscription of Steel Business Briefing, that steel producers in the US “were exporting finished products overseas at under domestic prices.” Now if that wasn’t a hoot given all the squawking by US steel companies over foreign material entering the US market (which we have been regularly reporting on here here and here,) I don’t know what is!

If US producers sell under the domestic price then they could be held liable under anti-dumping claims. Though one of my favorite past-times is commenting on the all-so-powerful steel lobby, I can’t deny the fact that US exports overseas are very strong because of the [low] value of the dollar. And in all fairness US steel products are not the only recipients of overseas contract awards. Much of the reason the US economy hasn’t completely fallen in the gutter relates to the value of the dollar and strong US exports.

But it does seem well, rather fitting, that other nations should pull the anti-dumping trigger, an anti-competitive technique honed and refined by  the ole US of A steel industry.

–Lisa Reisman

The price of oil has come  down significantly over the last week or so falling from over $147/barrel to $126/barrel as of this writing. Is this the  top of the chart and if it continues to fall what can we expect for metals?

Some are still predicting $250/barrel for oil next year,  though others have called $50/barrel. Both seem extreme but the price fall this month has largely been attributed to investors, speculators, call them what you will, pulling out of the market in the realization that a slowing US market has resulted in a drop in demand from the world’s largest consumer. Lehman Brothers says global demand growth will be 47% lower than initial forecasts this year because of declining US consumption and slowing world growth. The issue then becomes what is the new level likely to be? For the time being, the price has settled around $125-127/barrel, balanced between a perception of a world shortage, political tensions over Iran, and monitoring of stock levels and demand during the summer season in the US and the Beijing Olympics in China. Read more

In a rather shocking story that came out late last week, Johnson Controls, the interiors and seating system Tier 1 automotive supplier, sued four suppliers for levying steel surcharges on them, alleging the suppliers had violated their purchasing contract. The story is rather shocking not because automotive suppliers have been squeezed considerably since the start of the year due to rising steel prices, or because they actually decided to execute a clause in their purchase contracts (good for them). No the story is shocking because it’s Johnson Controls.

For those of you who don’t know the Holland Michigan based supplier, they are known within automotive circles as a leading spend management, supplier relationship management, sourcing best practices firm. Just look at their financial performance vis-a-vis most if not all of their automotive competitors and you will find a top performer. In addition, Johnson Controls often take a more collaborative approach to supplier relationships. JCI as they are known  by their stock symbol, tend to adopt the Toyota way of working with suppliers as opposed to the approach taken by GM.

However, according to the Associated Press, a federal judge prevented a supplier of Johnson Controls from raising prices or halting shipments. Now some suppliers are stating they are in grave danger of survival and will therefore halt shipments anyway. Not exactly the Toyota way. But JCI wouldn’t be the first to try such tactics. We covered this story a couple of weeks ago here. It’s time to restore some semblance of market balance among steel producers, component suppliers and OEM’s. If not, we’re going to see  some of the  best  companies turn out to be the meanest!

–Lisa Reisman

MetalMiner has always held a strong free market philosophy.

Our belief is that in most cases, the benefits of lower-cost material to consumers outweighs the damage to domestic producers that global trade can bring. In our experience, calls for anti-dumping fines, import tariffs or quotas are nearly always brought by large industrial producers.    The losers are their customers in the thousands who are forced to pay higher prices than necessary and certainly higher than their competitors overseas.

However, we are not dogmatic and would accept that there may be exceptional circumstances where an industry is of such strategic value or the global supply sources are so unstable that for national security reasons, some form of protectionism is appropriate. Would we be happy if the domestic silicon producers serving the US chip market were forced out of business and the only remaining source of supply was North Korea? I don’t think so.

So does magnesium fall into this category?

Despite anti-dumping actions that have rumbled on since 2002 and punitive ad valorem rates of 17.86-21.71 percent being levied against Russian and Chinese producers, magnesium imports have still climbed 27 percent year over year, according to the USGS. However, even though the cost of dolomite from which the magnesium is extracted has not changed one cent, the price of magnesium metal has doubled over the last couple of years. Producers argue that the cost of ferro silicon and electricity have risen dramatically, and that without the anti-dumping tariffs, the one remaining producer, US Magnesium, would be forced out of business.

That may be the case, but is that worse than magnesium consumers in the US paying a substantial premium over Asian consumers? What is the net position to the US in terms of jobs, productivity and exports of finished products from paying an artificially high magnesium price?

Which brings us back to the question: is there a strategic reason why we should protect the remaining US producer? Magnesium is mainly used in high-strength aluminum alloys and in die-cast parts for automotive and aerospace applications – important, possibly strategic applications. But supply sources are varied and expanding. China (31%) and Russia (19%) have proved to be serious and stable suppliers, Israel (48%) for metal and (33%) alloy is the largest supply source and Canada (29%) for alloys are both above concern. In addition, Australia is making massive investments in new facilities with the latest technology which could see the country rival China in terms of low cost per ton. In truth, supply sources are numerous and from politically stable sources, therefore, we can not see an argument for depriving US magnesium consuming industries of competitively priced metal any longer.

So even under this case, we still say no to protectionism.

–Stuart Burns

For those that follow the new LME Billet  contract, or those that want to once we launch our new premium service, MetalMiner IndX (SM)  which daily tracks this and many other metals, there has been a telling development  in the prices over the last week few weeks or so. Amid continuous reports of rising steel costs, prices for Mediterranean and Far East delivery have steadily declined since a late June high of over $1250/ton. Yesterday’s close for a 3 month buyer was $1085/ton, down some 14% from the peak. The Far East price closed at US$ 960/ton, the first time it has been below $1000 since May shortly after it was launched. Billet is used to make long products particularly reinforcing bar in the Middle East. SBB also reports that Asian scrap prices are softening and we ask the question is this the first sign of a drop off in construction activity? Certainly southern Europe has seen a decline in the construction market for the last 2-3 months and rebar production has been re-directed to the busy Middle East market.    Is the decline in Middle East prices an indication of over supply or slowing activity? Domestic Chinese billet prices have eased over the last week and at $ 200/ton under the LME, the Far East price suggests any excess capacity can be exported in spite of export taxes. The Middle East is entering its seasonal quiet period so it may be too early to call. Certainly iron ore, coke and energy costs will underpin the market, but we still see demand softening and would not be surprised to see the Middle East price approach $1000/ton and the Far East drift downwards towards $900/ton as the summer progresses.

Watch this space.

–Stuart Burns

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With her remarkable swordsmanship in Kill Bill 1 and Kill Bill 2, we have Uma Thurman — and that killer Hattori Hanzo samurai sword — to thank for some of the best sword fights in recent movie history. Then again, critics could also praise the swordplay in Seven Samurai. And The Princess Bride. And even Highlander. What other films are we missing?

Whether you consider samurai swords an ancient art form, quick entertainment from Hollywood, or the wonder of all metals technology, the truth remains that the creators and crafters of samurai swords sure know what they’re doing with steel. Dr. Rick Vinci, a materials scientist and engineer at Lehigh University, tells PBS in an interview on the intricate weapons that the elemental mixtures in samurai swords offer an excellent example of metals engineering. “One can mass-produce swords, but one cannot mass-produce swords that are also objects of art,” he says, and explains the complicated requirements for a perfect samurai sword: the treatments, the chemistry, the right tools. Read more

We had a chance to take in a little R&R this weekend at a farm we go to in Wisconsin. Looking at the cows and pigs, I was trying to find a topic that may be fitting for the sights when lo and behold I stumbled upon this story.

The plethora of headlines  highlighting who is doing well in a rising steel market never ceases to amaze me. Check out this article on US metal distributor Reliance Steel & Aluminum’s second quarter   earnings results. According to the article, David H. Hannah, Chairman and Chief Executive Officer of Reliance said, “The 2008 second quarter turned out to be quite a bit better than we had originally anticipated. The main reason for the increased earnings was higher carbon steel prices, which resulted in higher gross profit margins as we quickly passed through the increases to our customers.”

Now if that isn’t a brilliant earnings strategy I don’t know what is. He’s almost gloating about his company’s performance which had nothing to do with any apparent: operational improvements, better customer service, acquisitions of new clients or adding any kind of value. As they say, a pig will eat just about anything put in front of it and will keep eating and eating until it can’t get any bigger. But the good news for metals buyers is we all know who will get slaughtered in the end. I can’t wait to get out my Smokey Joe when the markets turn.

–Lisa Reisman

My hometown paper, The Chicago Tribune had a great little article on an anti-dumping case involving dry cleaner hangers. It’s interesting because everyone who takes their clothes to the dry cleaners will feel the pain of the ITC’s (International Trade Commission) ruling. Our government ruled in favor of the hanger producers here in the US and imposed anywhere from a 33% to a 164.5% duty, according to the ITC.

What does that mean for Joe laundry goer? Well, a box of pant hangers was $24 six months ago, according to the Tribune article and is now $50, because that is the going rate of hangers made by American producers. Dry cleaners are either eating that cost or passing it onto the consumer. We have published several posts on the ill effects these ITC decisions have on global trade and more important, inflation here in the US here in the US. When you cut off imports, domestic producers increase prices which causes inflation. Inflation causes people to reign in spending and that is exactly what the government does not want you to do. So why do we continue to listen to these anti-dumping claims? Because Big Steel and their specialty steel producer brethren have perfected the art of using these antiquated laws to their advantage.

What was perhaps the most interesting element of the article, however, were all of the comments suggesting that dry cleaners ought to reward customers for bringing back and recycling hangers. What a great idea, though my dry cleaner refused to pay me or rebate me anything for returning hangers when I recently offered to. Perhaps she has a cheap Korean source? Well, I’m sure the US producers will put the kibosh on that soon.

–Lisa Reisman

I grew up in a family of teachers, writers and musicians (though my mother should have been a mechanical engineer). So having a son who is obsessed with manufacturing processes (his favorite show is How It’s Made) gives me a chuckle. It’s not enough for him to know that his new Razor is made of metal; he needed to know if it was “stainless steel” (it’s actually aluminum). And so when his robotic engineer cousin Scott showed up with the toy Capsela well, let’s put it this way, we didn’t hear a peep out of our son.

Scott designs robotic medical equipment during the day and nifty gadgets at night. I thought it would be interesting to get his perspective on the use of metals in the medical device industry as well as test a few industry stereotypes. Read more

The big three automakers have moved from public auctions to discrete swaps and return deals with the steel producers in return for new coil. They are fixing the prices via agreed upon formulas which presumably are more to the auto makers’ liking than the auction prices they were previously getting (and had expressed disappointment in).  

By itself, there is nothing wrong with the car makers’ approach. The problem for the market was these auctions had set the US market prices for new sheet scrap bundles ” auto bundles and without them the market is casting around for a replacement benchmark. Various publications including AMM, Platts and SBB all post prices based on what is reported to them by contacts in the market but as this Purchasing.com  article  points  out, they vary by 10% from low to high and none of them can be said to set the benchmark.

To compound the woes of the scrap consumer, exports are at record levels up 10% year over year as scrap traders take advantage of the weak dollar to sell material to Taiwan, Turkey, Korea and other SE Asian markets. This has prompted talk of limiting scrap exports in the way that some other producers do such as Russia and the Ukraine but most observers think it will stand no better chance than the last attempt at controls in 2004/5. Temporarily restricting exports does release more material onto the domestic market and suppresses prices but eventually it dampens supply and harms consumers and producers alike.

So with the volatility of increased exports and the lack of a firm benchmark previously provided by the auto makers’, the market is a like a ship at sea without a compass. All we need now is the steel market to take a downturn and the scrap market could hit the rocks without warning.

–Stuart Burns

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