Articles on: Metal Prices

Way, way back in the early 1990s, my mood ring and slap bracelet were the coolest thing since kindergarten. Remember those? Slap bracelets didn’t stick around for long, probably because of parents like mine banning them from the house. Mood rings, on the other hand, came and went throughout the years. Apparently, they were big in the 1970s — and when I began first grade (a decade or two after the first wave, but let’s avoid specifics), I adored mine. Intricate scientific studies and complex advancements in emotional jewelry technology surely made it possible for the ring to reflect my mood. When I was happy, the ring turned blue. When I was sad, the ring’s vibrant yellow tint proved my discomfort. And after I had the ring for a bit too long, when I was wondering why it was constantly the same blackish hue, I would rub it against the warm playground sand until the ring finally turned a shade of violet or green.

Much less exciting than a ring that turns green is a ring that turns your finger green, which Eleanor Perry-Smith mentions in a recent article in Medill Reports, a site written and produced by graduate journalism students at my current school, Northwestern University. However, the metals process detailed in those cheap rings is much more important than temporary discoloration around a ring finger would allow you to think. Perry-Smith’s article is fascinating from both a metals perspective and a Chicago-area construction perspective. “Since the 1960s, the same process that left the annoying green spot on your hand has marked architectural and structural innovations for buildings in Chicago. Metals that oxidize are coming back into vogue for the strength and design potential they offer to the exteriors of buildings. The advantages of using metal exteriors in construction often outweigh the high cost and add an aesthetic edge. Upscale sidings and roofing offer varied finishes and decorative patterns offer for commercial buildings and houses alike.”

The architectural and aesthetic use of various metals is discussed in this piece, and copper, zinc and steel are noted as “the frontrunners for metal demand.” As we’ve mentioned on MetalMiner, however, the price of steel is rapidly increasing, making copper and zinc the best buys. Perry-Smith also mentions some interesting alternative metals for construction, making the short, but interesting article worth a read.

–Amy Edwards

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

It is hard to believe that we are coming up on the close of the first quarter of 2008. What a quarter it has been! We thought it would be fun to review our predictions from the beginning of the year and grade ourselves. At the same time, we will chime in with what we believe is in store for metals buyers and traders in Q2 and beyond. In case you missed our original predictions, you can find them here. Read more

There has been an awful lot of coverage, both here and in more famous columns (you notice I didn’t say better just more famous) about commodity price increases. You can’t open a newspaper or turn on the TV without seeing yet another record high price for precious metals, or agricultural products, or steel. But we have not reported so regularly on the effect these price increases are having so it was interesting to come across various sources discussing the impact on the US automotive industry.

The struggling big three automakers are being hit by about $350 raw material cost increases per vehicle compared to the average for 2007 and $421 per vehicle compared to February of last year according to Lehman Brothers. Read more

Forget oil, coal prices have been going through a bull market for the last year with the curve taking on hockey stick proportions over the last four weeks. Spot prices for thermal coal used in power stations reached $130/ton last week, a 37% increase from the beginning of the year following a 73% rise in 2007. Power station prices reached $145/ton CIF North European seaports in response to severe coal production and shipping constraints in Australia, China and South Africa, three of the largest coal producing countries. Vessels queuing at Australia’s Newcastle port face a month delay and production has been hit by bad weather in Australia’s NW territory and China. Price pressures are exacerbated by critically low inventories according to Goldman Sachs.

All eyes are now on the 2008 annual contracts which, like the iron contracts just concluded, will be under pressure from the high spot prices to show another dramatic rise. Goldman Sachs are predicting thermal coal to rise to $110/mt starting in April, when the new prices come into effect. This represents a rise of 98% from last year’s $55.65/mt.

China has switched from being a coal exporter of 83m tons five years ago to a coal importer today as power demand has rocketed and new coal power stations can not be built fast enough to meet demand. Vietnam, China’s largest supplier, plans to reduce exports by 32% this year due to rising domestic demand for power and   coking coal. South Africa, a net coal exporter will have to import over 22m tonnes this year to replenish depleted stocks. Australia cannot increase exports because of port congestion; new investment is planned but will take a long time to reach fruition.

Cement producers (the third largest user after power and steel) outside Asia are switching from coal to petroleum coke as a cheaper alternative, an option not open to the steel industry.

Meanwhile the steel producers are quickly pushing through price increases on the back of rising costs. Like thermal power companies, the steel industry buys the majority of its high quality coking coal on longer term agreements, usually negotiated annually. Prices have more than doubled this year to over $200/ton but the effects won’t kick in until May-June just as several of the world’s economies may begin to show a softening of demand.

With oil and gas prices high and coal rising fast, do not expect any respite in electricity costs this year. The cost of power may not immediately hit the big western metals producers who buy their power on longer term contracts but it will certainly affect producers in developing countries where contract terms tend to be of shorter duration. This will hit the small to medium sized metal smelters in Asia, Africa and South America particularly hard. These producers have been cushioned from rising power and ore prices by rising refined metal costs over the last few years but the relentless surge in power and ore prices may well meet a stagnant refined metal price if the demand curve flattens towards the end of this year.

What will that mean for metal prices? It’s anyone’s guess but there could be a lot of pain out there if high power prices agreed to now can not be sustained with high metal prices as the year unfolds.

–Stuart Burns

Note: This is part two of a two-part series discussing a recent report from Ernst & Young. Part one offers  additional insight and an introduction to the topic.

Inaccurate Analytics

The Ernst & Young report expresses disdain at the accuracy of metals price predictions, noting the disappointing errors of the past few years. The writers suggest that some metals, like nickel and copper, are hard to predict, but add, This has been, not coincidentally, a time of sustained market strength and rising metal prices over the last three years. Analysts, almost universally, have been predicting a sharp decline in metals prices to return to the average levels of the previous 10 years ¦ It is only when the mining companies are really convinced that future revenue from operations justifies the commitment of significant capital outlay that they will accept the risk, resulting in further capacity ¦ Investing just before prices plummet is a far harder mistake to survive than going along with cautious market sentiment and not making an investment.

The problem with any forecast is that it relies on forecasting tools — typically statistical models that rely on past data. These models may be better than a guess in the air, but they inherently fail to act in a predictive fashion because the utilized information has been gleaned in hindsight. In addition, it is always challenging to incorporate correct estimates of multiple factors, such as supply and demand, supply risk events which affect supply and demand patterns, technological innovation, etc. Read more

Note: This is part  one of a two-part series.

The mining sector saw $70 billion in transactions during 2006 alone, and a recent study from Ernst & Young suggests that this number will rise in 2007 and 2008, particularly if BHP Billiton moves forward in their bid to overtake Rio Tinto — a topic that was discussed on MetalMiner earlier  this week.  Consolidation shows no signs of slowing, and high metals and mineral prices are fuel for further acquisitions. In addition, the report reveals another finding that metals experts and analysts might consider interesting: The accuracy of outcomes for the recent metal price forecasts has been consistently disappointing, reports the paper, EYeSight on Consolidation: Backpedalling on the Cycle. This is a crucial piece of the report, as metal price forecasts, accurate or not, can be responsible for consolidations, acquisitions, and the choices investors make.

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