Gold has certainly had a roller coaster ride this last 12 months, up to a peak of $1030/ounce before falling back some $200. You’ve heard the popular saying: “When the dollar falls, gold rises.” In reality, the relationship between the euro, the dollar, and gold has been 94% accurate, according to a Reuters report in Mineweb.
In that case, what could the current fall in gold tell us about the direction of the euro and the dollar? If the dollar were to make a significant gain against the euro this year, from its current 1.55 towards 1.45 last seen in 2007, we could see a flood of cheaper imports, particularly steel, come into the market. The dollar won’t change the fundamentals of the world steel industry, but a combination of a stronger dollar and more imports could curtail price rises later this year if the assumed relationship between gold, the euro, and the dollar holds true.
Return you say? Since when was a penny made from steel? Well, for any of you too young to remember (thankfully that includes me) the US minted steel pennies during the second World War. The rising cost of metals has meant the US mint is losing $100 million a year making 7.4 billion pennies and 1.2 billion nickels at considerably more than their face value. At current metal prices, it costs 1.26 cents to make a penny (97.5% zinc and 2.5% copper) and 7.7 cents to produce a nickel (75% copper and 25% nickel). That is better than late last year though when a penny was costing 1.67 cents and a nickel nearly a dime. It’s debatable if this money is lost as it remains in circulation but the House panel that overseas the Mint would like a debate on the merits of bringing back a predominantly steel penny and nickel according to an article in the Associated Press. It raises a bigger question why not just junk the penny altogether ” when did you last buy anything for a penny? The country could save on precious metal resources not to mention costs, if it just dropped a coin that many would argue is out of date. According to Henry Paulson getting rid of the penny made sense but wasn’t politically doable ” now is that just the kind of logic you expect from a politician?
The headlines read like a used car lot: “They’re cutting back prices!”
But this time, there aren’t cars on the block — and the price cuts could affect those in the metals industry, at least in India. After meeting with Indian Prime Minister Manmohan Singh in New Delhi, leading steel makers in India decided to cut the price of flat products, rebar, and structural steel, due to the claim that current steel prices increase inflation. These new and improved prices, agreed upon this Wednesday, will be prominent for the next three months. Read more
Contrary to expectations earlier this year that the weak dollar would boost exports and shield domestic producers from imports, it looks like US imports are set to rise again, according to the Steel Business Briefing. Sighting import license applications SBB says US applications for April came in at 2.64m metric tons, 16% higher than the March preliminary import count of 2.28m tons, which in turn was higher than February. Interestingly, this is despite a continued decline in steel imports from China, suggesting the export taxes imposed in January by the Chinese authorities are having the desired effect. For April, China will likely fall to fifth place among the largest steel exporters to the US at 168,000 tons. That lags behind Canada at 646,000 tons, Mexico at 239,000 tons, Japan at 193,000 tons, and Korea at 172,000 tons — based on the license applications.
So if imports are rising, does this mean increased competition for domestic producers and lower prices for consumers in the months ahead? Not yet, as strong global demand, still rising raw material costs and capacity issues mean prices will be high for the second and third quarter at least. Read more
Although our blog readership is steadily growing, we seem to be misperceived by many as being quite “niche”. It is true to say that we aren’t going to be writing about Britney Spears or Paris Hilton (unless they happen to don some new metalized bra or something) but to say that the metals industry is “niche” is just, well, downright idiotic. And I love to report the statistics because there are so many of them which show how our readers represent an absolutely massive industry. To wit, January and February imports of unfinished metals associated with durable goods output totaled $12 b (and yes, that is b for billion). The US imported $6 b of finished metals associated with durable goods output during those same two months. So that is $18b of metals related imports in the first two months of the year and I haven’t even counted the metal content associated with six other categories (such as automotive vehicles, parts and engines and durables, manufactured except automotive). Hmm… think there are metals in those categories? These are just a small glimpse at the import numbers — we’re talking over 100 billion dollars of imports annually in a lousy year for imports! Check out the numbers! I’ll cover the domestic numbers in another post. But please, whatever you tell me, don’t say that we are playing in a “niche” market.
I read a fascinating article in Forbes last week about a growing international black market for rice. International rice prices are approximately 4 times higher than prices in China. And since China accounts for one third of the world’s production, according to the article, domestic policies in China greatly impact the global market place. What are the conditions and facts of this particular story? The specifics include:
- Surging prices
- Producers restricting exports
- China is the world’s largest producer
- Domestic China prices are lower due to domestic subsidies and export curbs
The interesting point is that the Chinese government would rather subsidize rural farmers (to keep them happy) than allow imports. In addition, the Chinese government seeks to be self-sufficient from a rice production standpoint but has now gone overboard by accumulating more than 30% of its annual consumption, as opposed to the 17-18% needed according to the UN Food and Agriculture Organization. Read more
There are constant news reports on stolen metals: Bridges disappearing overnight, copper pipes stolen from homes, and large, bronze statues disappearing from the streets.
Delaware State Police have decided to take a bite out of metals crimes, creating new rules for businesses which cover some of America‘s most stolen metals, including copper, brass, gold, and silver. WBOC suggests that these rules will stop metals thieves from striking: Pawn shops and scrap metal processors that sell metal now have to wait 18 days after purchasing the metal to sell it to a new customer. This gives police the opportunity to investigate when a potential victim claims property was stolen.
In addition, some of these shops will need to register with police for a sales license, as well as keep track of all sales to the store.
While securing a sales license and collecting information about sales shouldn’t harm businesses, some business owners worry that the 18-day wait before selling to new customers will hurt their own operations, especially considering the fluctuating prices of metals in the economy.
This is Part One of a two part series.
I thought I would write a blog post to try and make sense of a few articles I took a look at over the weekend. I’ll try to relay the quick facts behind each article. They all appeared last week and all came from the Financial Times. To save you a little time, if you are a buyer of steel, you’ll want to read on. Hopefully the rest of you will find this interesting.
The first article discusses a new freight futures index created by UBS bank (poor UBS hasn’t had much favorable press these days…what with impending job cuts and constant subprime references like this one. Read more
There was a time when if the price of a metal doubled in a year it would be the stuff of headlines. Not only trade journals, but newspapers and even TV channels would post features on the dramatic price rise and the ensuing calamity that was likely to follow ” whether it be a crash in the price or consumers being forced out of business. Nowadays we appear hardened to trebling or even quadrupling of prices in a single year such is the bull market that has prevailed this decade. So as the price of manganese has doubled in the last 12 months maybe we can be forgiven for not having taken too much notice. Read more
Several weeks ago, a gentleman that we know (no, this is not an Eliot Spitzer story), mentioned to us that he was looking to re-source a number of different assemblies that he currently has in China, hopefully to Mexico. The assemblies are fabricated parts, quite heavy by weight, powder coated with some welds. It’s a classic mid-market assembly….relatively low volume (less than 10,000 assemblies annually), high individual dollar value but low aggregate value (a couple of hundred thousand dollars). The gentleman, leading the effort at the company, shared his frustration over not identifying a single source in Mexico that was remotely competitive. How uncompetitive were the Mexican sources? Nearly double the delivered costs from China! Read more