Articles on: Metal Prices

As we enter this new decade, Stuart and I would like to thank all of you for your continued support, encouragement and feedback (good bad and otherwise) regarding MetalMiner. 2009 has been a great year for us. We grew our readership in January from 15,000 monthly readers to our current 26,000+ monthly readers putting us behind only the market leader, American Metal Market. And for a very small operation like our own, we are proud and humbled by that feat. However, we have much more work to do and we will not rest until we become the number one metals destination site for metal buying organizations as well as the investment and research community.

Now that our readership has reached critical mass, we have the task of “monetizing what we do. But rest assured, our daily blog content will remain free to all of you as will our current version of MetalMiner IndX(SM). We seek to not only revolutionize how buyers obtain metals markets intelligence but how producers, service centers and consultants engage with their target markets.   The term Ëœengage’ vs. Ëœreach’ suggests what types of activities new media sites like MetalMiner offer. If I may digress for a moment¦

Personally, I think banner ads are “dead. I know because firms constantly approach us to “pay for them. And I can’t really think of how they will benefit our firm, besides some brand recognition. Instead, at least, this is what I would want a place to engage with my target rich audience on issues, strategies, trends and topics of interest to them. I’d like to know who has an interest in a particular topic and I’d like to open a dialog with someone over common ground, so to speak. We call this model “attraction vs. “promotion. We discuss various topics and readers like you clarify what is of interest and what is not. In other words, we better match prospects with solution providers, producers, suppliers etc.

If I’m a large producer, I may have other messages I’d like to share with a metal buying audience¦a message that goes beyond “send us your inquiry and we’ll send you a quote. Those messages may involve environmental stewardship and leadership, global fair trade practices or product innovation. As any business exists for the maximization of profits, MetalMiner too must carefully balance providing content that readers have come to know and trust (or disagree with as the case may be) and making a profit. So in 2010, you will see a few changes to the site. First, we hope to add additional sponsors. You may also see more sponsored content and in some cases, more in depth content available for a small fee. Some of this will appeal to buying organizations and investment banks, consulting and research firms. Many of you have asked us to run Webinars and even conferences. We hope to add additional applications to the site and continue to build out our MetalMiner IndX(SM) with more data and more features and functionality.

As we evolve, so has our consulting practice at Aptium Global. Today, we focus on three main areas:

  1. Contingency based cost reduction services we work with manufacturers to implement cost savings for their metals related purchases where we can effect at least a $3m cost reduction.
  2. We also work with middle market and larger firms in which the savings are less than $3m. In this case, for a flat fee, we examine the purchasing data, conduct benchmarking activities and help the buying organizations devise methods of obtaining savings.
  3. Finally, we also offer retainer based or a flat day rate for companies that would like us to speak at an event, or would like to hire us as subject matter experts for any cost reduction initiative.

We look forward to another great year. If you have any idea for a blog post or would like to see more content in a particular area, drop us a line at lreisman(at)aptiumglobal (dot) com.

–Lisa Reisman

Steel has had a very interesting year, ending nearly where it started but for steel producers, hope that an upward price trend will continue into 2010. And certainly, the price momentum for key raw material components used in steel-making indeed appear to suggest prices will increase. But demand has remained a persnickety little problem for producers as it has undergone more of a de-stocking/re-stocking run-up and run-down throughout the year as opposed to anything steady. Next year, according to some, based on demand for at least one key end market will look different. For one, the automotive sector, according to this post we ran last week suggesting an enormous pent-up demand. But that won’t help all producers, nor will it drive the entire market (most steel for automotive consumption is galvanized and produced by integrated mills with galvanizing lines).

Other stories came to the fore in 2009 involving steel and some with profound ramifications on end markets such as oil and gas. The OCTG and line pipe cases represent some of the largest domestic trade cases. Anti-dumping cases will likely continue in 2010 albeit at a slower pace.

Here are some of the key stories involving steel that may impact markets next year:

We will come out with our 2010 steel price predictions during the early part of January along with a production cost model for electric arc furnace produced steel.

–Lisa Reisman

Despite semis demand being down some 30% from this time last year, the North American aluminum market is comparatively tight for material, particularly for ingot, scrap and flat rolled semis. On the primary side, smelters with higher cost structures have been idled and the low dollar has encouraged the flow of metal from coastal smelters overseas to take advantage of higher premiums in Europe and particularly in Asia. Premiums for primary metal in Japan are the highest since 2006 and have doubled since the early summer of this year. Although Russia’s Rusal has been shipping metal to Glencore to be tied up in long-term financing deals, there has been less metal flowing to the US and less available for spot sale in Europe. Consequently, premiums have increased significantly since the summer helping to support the LME price.

Meanwhile the semi’s market, which crashed in both demand and price at the end of last year forced the idling of rolling facilities in a desperate attempt to match supply to reduced demand. Demand has since gradually picked up but producers have been slow to bring back idled capacity until prices begin to move up. As a result, we are currently in that stage of a recovery where demand is very slowly increasing but supply is not, creating the potential for a squeeze on prices in the New Year. Mills are sold out for this year so pricing now is for the first quarter of 2010 and for the time being mills appear largely to be passing through ingot increases. But if demand continues to uptick gradually each month, there will come a time soon when they will look to increase premiums again following October’s increase. So far the distributors, although carrying a little more stock than during the summer have not entered into a re-stocking program of any note, preferring like the producers to wait and see how demand develops.

Residential and commercial construction are flat, automotive is up a little and trucks should begin to show some growth early next year. The risks of a double dip appear to be receding. The recent drop in unemployment levels, though slight is an encouraging sign. If buyers are working on a value add premium over P1020 or Mid West Ingot then we would suggest fixing second quarter premiums at the same level as the first may not be a bad idea. The next few weeks will be very quiet now. Many firms appear to be going into the holiday shut-down early, not actually closing but postponing decisions and activity to next year. Come January we will have a clearer picture of how the first half of 2010 is likely to unfold and our expectation is flat rolled producers are going to go for premium increases before they bring anymore capacity back on line.

Did you know MetalMiner IndX(TM) publishes daily aluminum scrap prices in China? Click here to use this free application.

–Stuart Burns

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

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

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