Articles in Category: Global Trade

A recent Bloomberg article suggested that although tin prices are currently strong they are expected to come off in the short term due to slowing domestic Chinese demand. The same article states half the tin  consumed in China is used in electronics soldering, a previously robust area of value add growth for Chinese companies. But a combination of rising wages costs, softening demand due to lower exports to the west and the appreciating RMB have significantly reduced growth prospects. China’s quarterly trade surplus shrank for the first time in more than three years from January to March due to falling exports. Many small electronics factories in the southern province of Guangdong were being closed after China’s new labor laws mandating minimum wages and setting limits on over time raised production costs.

China’s domestic tin prices are starting to drop lower than world prices as demand softens and rising production pushes the market into over supply. Although China became a net importer of tin this year, following the imposition of a 10% export tax this January, higher export prices could over come this and encourage exports again. Many say the retreat of China as a major exporter is the primary reason for the current high world prices.

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

Some of you may remember hearing  from us several weeks ago regarding plant shut downs in China in the run-up to the Olympics. Well, it has been decided for sure, according to my friend Richard Brubaker who writes a terrific blog at All Roads Lead to China and has been covering this story. But the plant shut-downs are only one part of the story. As Richard points out, the other short term issue of great concern to anyone importing anything from Northern China is the trucks-off-the-road edict in and around Beijing. In short if you import metal products or finished goods containing metal products, you could be facing delays and/or plant shut downs, depending on a range of factors.

Rich discusses several risks with the new closures including: a possible expansion of the radius of closures if target pollution levels are not met, water rationing due to a continued drought and energy shortages could close additional manufacturing facilities. He is spot on. Our man on the ground in China offered up some additional perspectives:

  1. Coal plants were on the list of plants to be shut down. But coal is in huge demand in China which could exacerbate energy shortages. Any high energy consuming industries such as ferro alloys, pig iron and refineries will be greatly affected
  2. Most metal exports have already been greatly curbed, due to export tax changes (the exception is high precision machining)

Since Jason is based out of Tianjin, one of the cities affected by the plant closures, we asked  him to comment on the affect of the closures on metals manufacturers. He said it was likely  some plants may close forever whereas others will only close for the time being. The export duties have put some ferro alloy plants out of business already. When asked if the proposed provinces/regions will be sufficient to achieve cleaner air for the Olympics, Jason said we may hear of the  south delivering  water to the North (e.g. digging a canal from the Yangtzi River to Beijing). All high pollution emitting companies along the river have been forced to shut down already. And many in China feel this stricter policy is necessary to further reduce pollution.What is perhaps most interesting is the dramatic change all of these factors are having on trade between the US and China. Many textile plants, shoe making companies and clothing factories are no longer in business. Many outbound vessels are being shipped with dead freight (since Q4 ’07). There is now no problem getting vessel space for west bound goods and it is now possible to book containers out of China at the last minute. Imagine that! Stay tuned.

–Lisa Reisman

Shipping Lines use the same principles of supply and demand to judge freight rates as does any other business. Typically a
route in one direction is more popular than the reverse. For example containers travelling from China or Europe to the USA, bringing in finished goods, commanded a higher rate than the same containers being sent back to those overseas markets.

Shipping lines are keen just to re-position the container back to where the demand is greatest ready for the next load and
would happily take low value cargo (at low rates) like metal scrap just to cover the cost of returning the container. The US
demand for imports over the last 10 years has made this a steady one way bet, until about 12 months ago according to the the Wall Street Journal. Read more

With both global prices and sales of steel steaming away over the last twelve months, the sometimes overlooked stainless market has been quietly contracting. The market contracted by 2.9% in terms of production last year to 27.6 million tons according to the International Stainless Forum. But the reasons for the decline – a sharp fall in nickel prices, appears counter-intuitive to us. We expected the fall in stainless demand in the second half of 2007, due to the rise in nickel prices in the first half of the year, as manufacturers switched from stainless to other products. There is a lag in these situations and production is hit only 6-9 months after the price spike. Western Europe and Africa reported a 13.3% decrease in stainless steel production to 8.7 million tons during 2007 while the Americas reported a 15.2% decrease in production to 2.5 million tons.

Asia, on the other hand, saw stainless steel production rise 6.3% to 16 million tons in 2007. China is now the world’s largest producer. Its production rose 36% to 7.2 million tons. While at the same time, the Chinese government has actively tried to curb exports of semi finished steel products by adjusting the incentives and penalties for exports. The result has been a decrease in exports of semis and an increase in exports of stainless containing components and products. 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

A friend and colleague of mine recently made a very interesting observation about global trading.

She said to me, “Lisa, if you think of importing as a privilege, it will be a lot easier to deal with the nonsense that our government subjects companies to.” My friend’s comment seems very poignant particularly after reading this article from Purchasing Magazine. The article talks about how U.S. Trade Representative Susan Schwab made some recent comments at the World Economic Forum claiming China was violating WTO rules because “Beijing, the world’s largest producer of many industrial commodities, is driving up costs for companies outside China by limiting its export of such key steel ingredients coke, tin, zinc and rare earths; such semiconductor materials as antimony and silicon; tungsten for mining and construction; and fluorspar, magnesium carbonate and talc.”

When China implemented a number of export reforms (as a response to US political pressure because of the trade imbalance) as we reported back in early January, Chinese exports slowed and according to Schwab, created an oversupply situation in China allowing other Chinese producers (such as ceramics and fiber optic producers) to buy these input materials cheaply. These export reforms were designed to steer Chinese companies away from low value-add manufacturing into higher value-add manufacturing. Good for the Chinese, right?

Well, now for the flip side. As many of you saw, and we have reported last week, there are a number of anti-dumping cases going on now (involving metals) in which the Chinese, among others, have been accused of selling “below fair market.” Voila! — one of these products, mattress innersprings, a value-add product, made of steel of all things, was targeted by a few US innerspring producers. The result is that Chinese mattress innerspring manufacturers are no longer exporting to the US and US mattress manufacturers are forced to buy from the “higher-priced” domestic suppliers. Remind me again how that helps the US economy?

So let’s see if I have this straight. Our government does not want China to limit certain exports used to make steel because that would mean US steel producers would have to pay more for key input materials, putting them at a disadvantage to other global steel producers. But US steel producers, in turn, sell steel wire to the mattress innerspring manufacturers, who can no longer be cost-competitive because Chinese-priced springs are coming in “under market value.” Hence the anti-dumping case. When I look through the list of anti-dumping investigations under review, I see a very mixed list of raw materials and value-add products. What message are we trying to make to the WTO? “We’ll decide which products are in violation of WTO rules”? “We’ll decide which industries in the US require the lower priced input materials”? In the meantime, if you feel you can’t sell competitively in the US, go ahead and file an anti-dumping petition. It’s a very mixed if not downright disconcerting message.

This comment from Spend Matters sums it up nicely: “I’m going to bet that if there is an anti-dumping duty on springs, there won’t be one on mattresses containing those springs. I remember once there was a 200% anti-dumping duty on laptop displays but not on laptops containing those displays. Guess what happened to the US laptop building industry?”

It’s quite a political game, these gyrations between WTO violations and anti-dumping petitions. Actually, it makes me wonder if “Big Steel” has got this administration by the short and — oh, I won’t go there…

–Lisa Reisman

The German manufacturing sector has been enduringly robust over the last 30 years. Even recently, a developed mature economy which still generates a lot of its GDP from manufacturing has proved extremely resilient in the face of persistently high European Central Bank interest rates and rising raw material costs. Much of this is down to efficiency improvements squeezed out of the manufacturing sector in the first half of the decade, investments in automation, outsourcing of components and services to Eastern Europe and low wage inflation. Germany is the core economy in the Euro zone, those EU countries that have adopted the single currency.

One advantage manufacturers in the Euro zone have enjoyed over the last few years has, perversely enough, been a strong currency. But that hurts exports you will (rightly) say, look at how a surge in exports is helping US manufacturing in a period of domestic downturn. Quite right but the flip side is it reduces the cost of not only imports but in this case any dollar denominated purchases. So commodities, at least oil and base metals which are largely dollar driven products, should have proved less inflationary for Euro zone manufacturers than for US manufacturers.

Three years ago aluminum was trading at $2000/ton and one Euro equalled $0.84. This week, aluminum is at $3000/ton and one Euro equals $0.63. So US consumers have seen a 50% increase in the cost of their raw material, but Euro zone consumers have only seen a 26% increase. The position becomes even more pronounced in copper. Prices  have moved from $6700/ton three years ago to $8360/ton this week, an increase for US consumers of 25% but for Euro zone consumers only 4.8%.

Fine you say but then they come to export and that turns on its head as the strong Euro makes them less competitive, negating the benefit of lower raw material cost increases. True but only a portion of any country’s production is exported, less still is exported outside of the trading block. For the Euro zone  only 21% of GDP is derived from exports, made up of both goods and services, the other 79% is internal consumption. As this is goods and services, the value of goods is closer to 15%, so in reality for much of the Euro zone, commodity price increases have been modest compared to the US. This is perhaps why the ECB can afford to focus on inflation rather than boosting the economy. So far the economy has been doing just fine, thank you very much.

Currency is an oft overlooked piece in commodity costs, because most commodities are either traded in dollars or at least price fixed in dollars.   We tend to ignore movements in other currencies. For a US consumer that is fine but for a global manufacturer or company engaged in extensive overseas sales, currency becomes as big an issue as metal costs ” making an already complex two dimensional game into a three dimensional nightmare.

MetalMiner is developing some tools to create greater clarity in this area in the months to come. Anyone interested in receiving further details can pre register below:

–Stuart Burns

A few weeks ago we wrote about an anti-dumping petition for mattress innersprings brought by Leggett & Platt. Here is the five second overview: Leggett & Platt, along with these firms, Hickory, Sealy, Simmons, Spring Co., Symbol Mattress filed an anti-dumping petition alleging the US innerspring industry has been materially harmed by imports from China, Vietnam and South Africa. We heard from several of you and decided to do our own little investigation to better understand the petition, what those affected by the petition can do, and attempt to explain these anti-dumping petitions in greater detail.

You might stop reading this post because this specific anti-dumping case may have no relevance on you or your industry. But make no mistake about it the number of anti-dumping cases involving metal products is substantial. Of the 20 current cases in “Preliminary Phase Investigations” (which includes mattress innersprings), 50% relate to metal. You can check it out yourself here. But I digress. The point is, petitioning the USITC is a popular remedy for metals companies who feel they have been harmed. And, according to my trusted colleague and former global trade specialist Melissa Stephanou (I know her from my Deloitte Consulting days), these anti-dumping suits are on the rise. Read more

We have spoken several times over the last few months about the shipping industry. It may not be a traded metal product but it has a direct bearing on metals prices. And, more important is often a bellwether for the state of regional economies. So after a bumper 2007, it is interesting to see how demand is dropping in 2008 just as an additional 60% of global capacity is about to be added.

This would not be a problem if demand continued at the rate we have seen for the last few years. But that is not the case. Supply and demand patterns are in a state of rapid flux at the moment as evidenced by the capacity utilization rates dropping on the Asia to US west coast routes for five straight months and on the Europe to US east coast route, both a function of the weaker dollar and falling demand. Conversely, (and this will be good for US importers and consumers) capacity utilization is up from the US to Asia and Europe as exports increase. This will encourage shipping lines to drop the import rates to position containers for the more lucrative export routes. Rates from Asia to Europe are also up due to the strong Euro transferring material and component supply to Asia. A further sign of strain in the market are the steps being taken toward consolidation of services. We take this as a sure sign that shipping lines are trying to protect rates in the face of falling demand. Even the industry leader Maersk Line is in talks about vessel sharing on their transpacific routes.

The question is to what extent will this continue and can we expect this massive increase in capacity to benefit US consumers by lowering freight costs further? The answer depends at least in part how much a US downturn will spill over to the rest of the world. To what extent, over the last few years, are the different economies interdependent and to what extent have they decoupled (the current in vogue phrase)? Evidence presented in the Economist suggests that the emerging economies may indeed have decoupled from the mature western economies to a greater extent than we had realised. Half of China’s exports now go to other emerging economies. Sales to the other BRIC countries are up 60% year on year to January. Domestic demand is also surging (a matter of concern to the Chinese government worried about inflation) with consumer spending rising three times as fast as in developed countries and fuelled by massive capital spending, up 17% in emerging economies last year. Much of this investment is in infrastructure and property which will continue to fuel internal consumption keeping the economies growing even as the US does not.

Much of this additional shipping capacity was ordered on the assumption that the global economy would continue to expand. With the US going into a period of stagnation, there is bound to be excess capacity available if not to the extent that a global recession would release. So the good news for hard pressed US manufacturers is that rates are likely to ease over the coming year, though not collapse, reducing import costs (the exchange rate notwithstanding) and making exports yet more competitive. Wouldn’t it be something if the US economy which was facing a massive imbalance of payments position just 18 months ago was to export itself out of a recession in 2008?

–Stuart Burns

1 244 245 246 247 248 249