It sounds illogical. A farm bill that provides “government-sponsored insurance, counter-cyclical assistance, disaster aid and legacy payments tied to nothing, the five-year $307 billion bill lavishes cash on wealthy farm households, the main restriction on collecting it being a means test that applies to couples making more than $1.5m a year,” according to an article entitled: A Harvest of Disgrace, published by the Economist, can not possibly relate to anyone in the metals industry. Or can it? Read more
Articles in Category: Ferrous Metals
It’s an oft-cited fact that the steel price and level of demand is driven by a burgeoning need from China — yet in a recent conference speech, Xiong Bilin of the Chinese NDRC is reported to have said that China has 500 million tons of steel producing capacity and supply exceeds demand. In the same speech, the NDRC went on to explain the reason the authorities have been blocking the involvement of foreign steel companies in the building of new facilities in China: to try to head off a massive excess of production capacity. Read more
Buying a new car could become more expensive in the approaching months. Last week, automaker Honda Motor Co. announced that higher steel and other raw material costs could cause the company to increase the price of their vehicles. Honda, along with Toyota Motor Corp. and Nissan Motor Co., shared expectations of an operating profit drop in the immediate future. Toyota Motor Corp. admitted on Sunday that they are “near a price increase accord with steel suppliers to offset the rising cost of raw materials.” According to Bloomberg, “To help offset rising costs, Toyota plans to boost the price of some U.S. models this month by 0.7 percent on average. Nissan in April raised the price of its Versa compact car and Pathfinder sport-utility vehicle. Honda on May 12 said it is considering raising prices in North America, Japan and other markets.” Read more
Today, I thought I would continue my earlier piece on managing metal pricing volatility. You can find that article here.
Have you ever received the advice of a consultant who suggested that one way to mitigate metals cost increases is to develop a contract pegged to an index? Well, truthfully, we’ve given out that advice, so let’s see what these indexes actually cover and who can take advantage of them.
The most famous of the metals exchanges (in which daily price information is published) is the London Metal Exchange. There, a company can participate in the largest metals futures market for a range of base metals including steel, nickel, copper, aluminum, zinc, lead and tin. Most recently, the exchange added steel (billets specifically), which we have previously reported on here and here. The last article also references the hot rolled coil steel futures market with Nymex. These futures markets, like the LME and Comex, are viable if you are buying primary metals, but rarely correlate well for semi finished metals. Read more
As we have reported previously, nickel prices have dropped in half from their peak last year, following a combination of grade substitution and massive stock draw downs combining to hit production. When production drops, one automatically assumes demand must have dropped — but apparently demand has remained reasonably steady as stocks have dwindled, and is now forecast to grow this year, according to the Paris based International Stainless Steel Forum ISSF. During 2007, stainless production in the Americas and Europe/Africa declined by almost 12% and 13.3% respectively but is forecast to grow by 3.7% and 4.4% this year. You will not be surprised to hear the largest producer and the greatest growth is forecast to be from China, not least because there are several new plants in the commissioning stage that will shortly be coming on stream creating a 7.3% increase in capacity.
It’s hard to agree with the ISSF’s bullish growth forecasts, however, since North America and Europe have both proved to be surprisingly resilient in the face of weakness in the housing and automotive markets. I would expect any improvement in demand to be met by the new production capacity coming on stream and prices to hold reasonably steady through 2008. For the US, much will depend on the fortunes of the US Dollar. Continued weakness may prevent consumers from enjoying the benefits of wider import supply options and (as with steel this last year) seeing domestic producers take advantage of a tightening supply market.
Have you ever started a Google search for something and then ended up finding something else more interesting? Unfortunately, this happens to me quite often. Whenever I have a few extra minutes, I head over to sites like Mineweb and read through the headlines. Somewhere in those headlines, I believe there was a story on Ternium — and don’t ask me to find the story because I can’t, nor can I remember why I clicked on the headline. Anyhow… whatever it was, it made me click over to their corporate website only to catch the following in Spanish: “Ternium proporciona informaciÃƒÆ’ ³n actualizada respecto del proceso de nacionalizaciÃƒÆ’ ³n de Sidor.”
Hmm…. nacionalizacion? I recognized the company, Sidor, from my old trading days. But this headline could only mean one thing…and I knew it wasn’t good. And there it was in plain text (only this time I converted it to English) — on Tuesday, Ternium, a conglomerate of steel companies operating in the Americas, announced that Chavez’ Decree Law 6058, “became effective today upon its publication on Venezuela’s Official Gazette.” The decree orders Sidor and its subsidiaries to be transformed into state owned enterprises.” Furthermore, the government will own at least 60% of their share capital. Read more
China has come under a lot of adverse press during the last year or two over its investments in mining resources around the world, particularly in Africa. The suggestion is that China is trying to corner the world market on raw materials, depriving the rest of the world from access. What is the reality, and are these accusations justified? Read more
China is without a doubt the most dynamic emerging market of the decade. For the world’s largest communist state, it must feel like they are sailing a ship driven by the wind in one direction and the tides in another. After tax and regulatory changes last year that would have stopped most economies in their tracks, China’s growth has slowed a fraction — from 11.9% for 2007 to 10.6% for the first quarter 2008. But the story is anything but a gentle reduction in growth. Under the surface, there have been changes in investment with winners and losers all around. Read more
My local paper, the Chicago Tribune, had a great article yesterday on the state of the near booming (my words, not theirs) steel industry. There were several statistics in the article worth mentioning and of course, commenting on. Specifically, the US steel industry is operating at 90% capacity, which does not come as any big surprise since many of the non-profitable operations were closed over the past couple of decades. But prices as you all know are increasing and some are increasing by up to 50%, since the beginning of the year. Read more
A slew of economic data recently published paints a picture that’s more Rothko than Rembrandt. That picture is fuzzy, blurred, and somewhat confusing. Its interpretation is left to the viewer. But those in the metals industry know that economic conditions directly impact commodities. And so we start with a few tidbits of data that go beyond metal working and affect all manufacturing. That data relates to US productivity numbers. What do you need to know? Briefly, just the following:
Productivity increased by 2.2% in the first quarter, which was significantly higher than what economists had predicted, according to this article. That’s good, right? You bet, and the reason for that is productivity keeps labor costs in check — which in turn keeps inflationary pressures down. Of course, we metal folk know a lot about inflation, so any news to help on that front is welcome.
Another tidbit of good news … According to the Chicago Federal Reserve Bank on April 28, “regional steel output fell only by 0.2 percent after rising by 0.4 percent in February.” The machinery sector was also up by 0.6 percent and the resource sector (which includes food, paper, minerals, chemical and wood production) was also up. Although manufacturing in the Midwest certainly isn’t setting the world on fire, so far, so good.