Articles in Category: Imports

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

In a bizarre move driven by anticipated changes in Chinese export taxes, steel imports in the USA surged by nearly 35% as tonnage increased from 1.98m tons in December to 2.66m tons in January, according to the Precision Metalforming Association in Purchasing.com.  That is still some 18% below January 2007, and against a back drop of much reduced imports over the last 6 months as the weak dollar and rising world prices have made imports unattractive. This is bizarre in part because the changes in the 13% export rebate never actually happened at the year end, but also bizarre because much of the surge in process these last few months has been possible because of reduced imports. Read more

The brass producers and distributors are under pressure, and I don’t just mean water pressure [pun intended]. Copper and brass shipments in the USA have been down since the summer of 2007 due to continued cut backs in new housing construction starts. The housing industry is by far the largest end user of copper and brass products at around 40% of total consumption and finds it way into faucets and valves, brass fittings, HVAC or electrical wiring and connectors. The average new US single family home uses some 400 pounds of various brass and copper products. And, if the public begins to reduce spending on home remodels, there will be an even greater affect on the brass market because the ratio of sales for remodelling to new build is 3 to 1. According to Forbes, the news has not been pretty for building products manufacturer Masco and Home Depot Read more

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