Articles on: Metal Prices

A recent Sydney Morning Herald article gave a very bullish prediction on global steel production saying production for the first calendar month of 2010 was a record 113.4 million tons, exceeding the previous record for the month of 112.9 million tons in 2008. Concerns were raised by Moody’s and have been mirrored elsewhere that so much is dependent on growth in China continuing. Concerns exist that either stimulus measures will be prematurely removed or rising inflation will force Beijing to reign in growth by tightening credit or raising interest rates. Reporting on the Japanese market, Reuters said this week that Japan’s crude steel output is expected to keep growing in the April-June quarter on strong exports of automotive sheet steel, although the recovery lacks strength due to weak U.S. demand, the Japanese Ministry of Economy, Trade and Industry said on Monday. Crude steel output in April-June, the first quarter of Japan’s financial year, is seen rising 37.1% from the same period last year to 26.17 million tons. According to the article, the world’s second-biggest steelmaker Nippon Steel Corp and sixth-ranked JFE Holdings Inc are raising production to meet demand from fast-growing Asian economies, particularly China.

If so much relies on the China market continuing to do well we thought a review of prices in the domestic steel market this quarter may give some early signs of possible weakness. If spot market prices have flat lined or worse are dropping it would suggest the market is in oversupply and optimism on the part of other Asian producers is misplaced.

The following graph is taken from the MetalMiner IndX that tracks a range of daily ferrous and non ferrous metal prices in China.

As we can see the trend has been for a gentle dip around the Chinese New Year in February when the markets were quiet either side of the holiday and the exchanges largely closed for a week. But since then prices have again been moving up particularly for billets a precursor for the production of bar and other long products, and rebar and H shaped beams both used in the construction industry.

This ongoing strength in spite of credit tightening supports reports elsewhere that the market is continuing to consume metals at a robust rate and although Beijing’s cautionary moves have spooked some investors they have not yet had any impact on the rate of growth.

Although it is unlikely growth in demand will significantly pick up in Europe this year and will be relatively slow to come back in the US, it is a fair probability prices will continue to rise due to rising raw material costs. This will likely impact China and Europe before the US where steel producers are more reliant on annual and spot priced iron ore imports from Brazil and Australia, and coking coal from South Africa and Australia both of which are set to roughly double this year. It will be interesting to see if the strength of the steel market allows producers to pass these costs on and still retain the volumes currently being produced.

–Stuart Burns

Listen here for details about MetalMiner’s latest webinar, Q2 Steel Market Update, featuring guest speaker, John Campo VP of Sales & Marketing with O’Neal Steel.

Sign up for the date/time that best works for you:

April 13 9:30 – 10:30 am CST Live Event: https://www2.gotomeeting.com/register/150560066

April 15 12:00 – 1:00 pm CST Second Seating: https://www2.gotomeeting.com/register/430344371

April 16 10:00 – 11:00 am CST Third Seating: https://www2.gotomeeting.com/register/736000467

The details: The webinar will provide listeners with a market update and outlook for for steel as well as demand trends by key end use segment.   Participants should come away with:

  • a clear understanding of the drivers of current prices
  • the role and impact of China on the steel market
  • cross-industry insight into where demand is coming from
  • tips, ideas and strategies for mitigating costs and reducing risk

Join us for this free event! Sign up quickly as we only have seating for 100 people per seating!

Sponsored by:

These past few weeks, some of you may have noticed our more frequent discussion of variables impacting metals prices. Whether you track steel, aluminum or copper prices, everyone wants to know where prices are going and what will push prices in one direction or another. Whether you look at these five metrics that we covered last week or this handful of Chinese economic indicators or news stories saying that Boeing is increasing production and March auto sales show an economic rebound, at least one person sees quite different writing on the wall.

We caught up with Rick Davis, a self-described “numbers geek physicist who runs the Consumer Metrics Institute out of Lakewood Colorado. Davis started his, for lack of a better description, consumer data research firm out of a frustration with the inherent biases in current economic research data. He shared with me some of his thoughts and rather than draw conclusions for you, I’d like to share with you some of Davis’s research so you can make your own decision. But first, what biases does Davis take issue with? He thinks the retail economic indicator “same store sales has two design flaws. The first, the notion of under-reported casualties that same store sales only report the stores that are still around, not the stores that go belly-up. This results in a bias because the data will appear more favorable than the underlying economic reality. He went on to describe Circuit City and Best Buy as an example. When Circuit City went out of business, Best Buy picked up share, which looks favorable from a reporting standpoint and even suggests growth when in fact, Best Buy may only be gaining share left from the void of Circuit City. Rick calls this Ëœsurvivor bias’ (maybe it’s also the proper economic term, I don’t know)

The second issue with economic data that troubles Davis involves the delay in relaying data. According to his site, “Leading Indexes that rely on data published by governmental departments are generally updated monthly several weeks after the month’s end. Often the governmental data includes some estimates and is necessarily preliminary, so a final set of numbers is published yet a month later. Going through the myriad of charts, statistics and analyses that Davis has on his site, one can see why he draws that conclusion. Take a look at this chart below:

The pink line is what the government is reporting but look at where the Consumer Metrics Institute line goes. According to Davis, “production trails consumption. A healthy factory is going to respond to consumer demand. So what explains some of the positive factory/producer statistics including greater capacity utilization?” Davis believes, “producers may be re-stocking but are lagging consumer demand. Upturns in manufacturing may just involve re-stocking and response to consumer demand from the third quarter of last year. It’s hazardous for manufacturers to ramp up production too rapidly.

In a follow-up post, we’ll examine some of the other key economic indicators Consumer Metrics Institute tracks, their own biases and how these indicators square against the rather positive headlines of the past few days.

–Lisa Reisman

For any of you aluminum and stainless steel buyers out there, you will not want to miss MetalMiner’s first webinar given tomorrow, Wednesday March 10 at 9:00am CST. The webinar provides an in depth look at the global markets for aluminum and stainless steel and we will be joined by guest host, Tony Amabile from TW Metals who will cover domestic market trends for both metals. This webinar dovetails with MetalMiner’s new Price Perspectives Series, research that examines not just historical data but the drivers impacting prices looking forward through 2010.

As any metal market observer, buyer or analyst knows, the degree of commodity volatility occurring within the base metal, ferrous metal and precious group metal marketplace has never been greater. Forecasting, budgeting and planning have become more challenging as a result, forcing everyone to pay much closer attention to a broader range of factors impacting metals markets. We believe attendees of the event will walk away with the following:

  • a clear understanding of the drivers of current prices
  • the role and impact of China on both metals
  • cross-industry insight into where demand is coming from
  • tips, ideas and strategies for mitigating costs and reducing risk

The registration process takes less than 20 seconds. Please join us on Wednesday. If you have any comments or questions, please feel free to leave a comment here or drop us a line at lreisman (at) aptiumglobal (dot) com.

–Lisa Reisman

The latest in a string of anti dumping cases brought against China since the economic downturn has resulted in preliminary duties of 11 to 13% being applied on seamless steel pipe from China according to an article in Reuters. The latest case concerns seamless carbon and alloy pipe of 16 inches or less in outside diameter used in industrial piping systems to carry water, steam, petrochemicals, chemicals, oil products, natural gas and other liquids and gasses.

Quoting Commerce Department figures, the Washington Post stated that the volume of steel pipes imported from China more than tripled between 2006 and 2008, rising from $632 million to $2.6 billion, according to the Commerce Department. The China Daily defended the country’s steel makers by saying China was a large importer of steel before 2005, but massive investments in the steel industry have resulted in an increase in capacity. In 2008, China’s exports of steel pipes reached $3.2 billion, accounting for over half of the total US imports of steel pipes. But from January to November 2009, China’s exports to the US made up for merely 14% of US total imports. And, according to US figures, US imports of steel pipe shrank by 50% during the first 10 months of 2009, no doubt partly due to earlier calls from the domestic steel industry for anti dumping measures to be brought against Chinese producers.

Domestic steel producers led by US Steel and the United Steel Workers but signed by many others, claimed the subsidies from the Chinese government allowed the firms to overwhelm their U.S. rivals. The companies alleged that their Chinese rivals received discounts on raw material and loans from government-owned firms. Needless to say, the Chinese vehemently deny the claims saying they have to pay market rates for their raw steel and are funded by bank loans at commercial domestic Chinese rates. Unfortunately, the data provided by those bringing the case is not yet available to the public for wider review, but may be in early this month. They may be right that bank loans are not at commercial levels or that somehow state and private steel producers have been coerced into supplying the pipe makers with raw material at subsidized prices but until the data is made available, we have no way of checking. Knowing how ruthlessly Chinese companies tend to compete against each other, extracting the highest possible price they can in what is a cutthroat domestic market, we find it hard to believe they are being subsidized in terms of cheap raw materials but low cost loans are a distinct possibility, as we have written elsewhere the Chinese banks have been almost forcing loans onto the commercial sector. Cheap land and tax breaks in the early years of operation are also a possibility, conceivably reduced power tariffs – we have seen that for aluminum producers, but then loans and tax breaks are often extended to firms in the US too. All in all it is easy to see how a combination of small advantages could add up to a significant cumulative advantage justifying anti dumping tariffs, we eagerly await the details.

Meanwhile according to China Economic.net the Commerce Department set a preliminary duty rate of 12.97% on the Hengyang group of companies and 11.065% on the Tianjin Pipe Group Co and related firms. All other Chinese producers and exporters will face a countrywide duty rate of 12.025%, according to the site.

Some observers were casting around for a commodity on which the Chinese could retaliate and suggested soya, of which some $7.5bn is imported each year from the USA, but the Chinese were at pains to state they had no intention of retaliating and instead vowed to fight the case through the WTO.

Even though Chinese steel pipe imports had dropped to 14% of the US market they no doubt still played a significant price-benchmarking role for consumers. With that option effectively removed from the market, or at least handicapped by double-digit duties expect pipe prices to rise in coming months. Indeed the discount on imported pipe has already reduced from some $50/ton to barely $10/ton now as volumes have been impacted by the anti dumping cases. Domestic producers didn’t have a lot to cheer the last 12 months but they should now feel the future looks a little better.

–Stuart Burns

Last year we heard from dozens of MetalMiner readers that you would like to see a few metal market overviews via webinar. Based on the feedback we received, our audience appears split between the steel and nonferrous metal market updates. Therefore, we will split events up and stick to a one-hour format until you tell us otherwise. Initially, the webinar will include an approximate 20-minute overview of both aluminum and stainless steel markets. The market overviews will examine raw material costs, global supply and demand, with a special emphasis on Asian demand. Hosted by MetalMiner editors, Lisa Reisman and Stuart Burns the overview will set the stage for a deeper analysis of the US market led by Tony Amabile, Director of Marketing for TW Metals, a specialty metals market distributor and sponsor of the event.

The webinar is a no cost event for attendees and will appear live on Wednesday, March 10 at 9:00am CST. Readers can learn more about the event and register here MetalMiner Perspectives: Q2 Aluminum & Stainless Steel Market Update

About TW Metals: TW Metals has a leading position in the specialty metals market. TW stocks and processes pipe, tube, bar and rod in stainless, aluminum, alloy and carbon, as well as a variety of high alloys such as nickel and titanium. Headquartered in Exton, Pennsylvania, TW has a large distribution network in the U.S. as well as Europe and Asia.

We hope you can join us!

–Lisa Reisman

One question everyone likes to ask us is this: how accurate were your previous predictions? Since we don’t exactly self-score, we’ll give the stock answer we give all of our prospects, “go back and judge for yourself. To save you the trouble, here are two of the most popular posts we have ever written on the subject of steel price predictions: 2009 Steel Price Predictions Part One and 2009 Steel Price Predictions Part Two. Steel prices for 2010 already have their own set of dynamics making the business of forecasting tricky indeed. If one asked us to identify the key themes for steel prices in 2010, we would suggest several and the bigger ones include: higher raw material or input costs, China growth, sluggish Western demand and “little supply/demand changes make for big price changes.

We have already witnessed substantial flat rolled price increases with rebar showing the greatest price weakness. The question becomes, will the mills’ price increases stick? In one word, yes but the road will look a little bumpy. The other big variable in steel prices involves the global trade of steel. Last year, we witnessed several of the largest anti-dumping cases ever brought forward including one involving OCTG and the other for line pipe. We have also spent some time looking at the nature of our global trade deficit and sought greater clarity on the subject of currency pegs particularly as they relate to trade with China. On February 19, the American Institute for International Steel released a press release entitled: December Steel Exports Rise Year on Year Exports Contribute $10.5 billion Positive to Trade Balance. To better understand the context of those numbers, we decided to do some of our own digging to analyze the volume and value of imports against the volume and value of exports.

The results appear as follows:

The US runs a $6.3b steel trade deficit with the rest of the world. Last year, the US produced 82.3m metric tons of steel according to the World Steel Association at approximately 65% capacity utilization. This analysis probably raises more questions then it answers. For example, what should US trade policy look like given the size of the 2009 trade deficit? If the US steel industry operated at 65% capacity and yet the US ran a steel trade deficit of $6.3b how will trade policy change? Will it change? Perhaps more important to metals buyers, how will trade and anti-dumping cases impact steel pricing in 2010?

The MetalMiner Steel Price Perspectives 2010 contain detailed EAF and BOF production cost models updated with the latest raw material costs, a quarterly price forecast as well as a detailed global analysis of steel pricing leveraging historical data from our proprietary MetalMiner IndX(SM). Single reports are available through the above link for $347 and $1257 for a quarterly subscription. Discounts are also available.

–Lisa Reisman

Japan’s JFE was surprisingly bullish in comments made by Tsutomu Yajima, senior vice president of JFE Holdings’ core unit JFE Steel Corp, in a Reuters article. Yajima is quoted as saying the company is in talks with its clients in Asia to boost its hot coil prices by $200 per metric ton to the mid-to-upper $700 range in Q2, from around $550 in January-March. JFE also aims to raise the price of shipbuilding plates by $150 to $750, he said.

The World Steel Association anticipates a 57 million ton increase in steel demand in Asia in 2010, or 8%, although JFE is forecasting it will be much stronger. The firm expects the region to increase its steel-making capacity by only 50 million tons in 2010 as many old Chinese mills will be closed down, allowing steel makers to pass on rising costs in higher prices.

Asian iron ore prices have jumped since buyers have returned to the market after the Chinese New Year. And though inventories at China ports have risen slightly to 69.42m tons, the first trades have been at US$136/ton for 62% Australian and 63.5% Indian ores CIF main Chinese ports according to this article. Having said that, analysts do not think prices will hold at this level and are expecting a period of de-stocking to impact prices in coming months. Swaps contracts for the second quarter were pegged at $129-$131 and at $126-$129 for the third quarter according to another article.

Comparisons with January 2008 are interesting but hardly of any use in determining current trends simply because production was so low last year an increase now is inevitable. Details of a World Steel Association report in Reuters said global crude steel production jumped 25.5% year-over-year in January but more importantly increased 1.8% over December as steel makers continued bringing back idled capacity, banking on economic recovery. Production in January totaled 108.9 million tons versus 107 million tons in December, while crude steel output in China, the world’s largest steel producer and consumer, was up only 0.2% on a monthly basis.

Quite where JFE sees this surge in demand from is not clear. But they say demand will come from   automotive steel sheet and tin plates, likening the situation to early 2008 when strong demand and skyrocketing raw materials costs pushed hot coil prices to $1,000 per ton. We would be staggered if that happened this year given the world crude steel capacity utilization ratio. According to WSA, in January 2010 that ratio was still only 72.9% up from 71.9% in December 2009.

The position of European producers seems a more likely reflection of reality, although it may just reflect the slower rebound Europe is seeing compared to Asia. Swedish steel producer SSAB Chief Executive Olof Faxander said in a Reuters report that he expected the price of iron ore, coal and coke to rise during the period, and global steel demand to strengthen somewhat in the first quarter compared with Q4 ’09,” he added. “We see an end of inventory liquidation and a slight improvement in demand from end-consumers.” Hardly set the world alight comments but probably a fair prediction of a gradually rising demand.

–Stuart Burns

Today, you may have noticed a few site changes. Back in January, we warned you that we might make a few. The biggest change involves MetalMiner moving into the world of ecommerce by providing metal market perspectives for the complete range of industrial metals products. You can find more information about those reports through the link here:

Price Forecasts New!

When we launched this blog site just over two years ago, we didn’t exactly have a clear direction as to what this site would become. But you have surprised us! And the world of analytics is one that fascinates me personally as it has given us an opportunity to fine tune the nature of the content we provide. You all have told us loud and clear that market changes, global economic trends and price direction are all things that are very important to you. So the price perspectives series really is just a natural extension of synthesizing all that we write on these virtual pages.

Now since we know most of you are in the sourcing/purchasing/procurement functions within your companies, we have tried to position the offering at price points that everyone can take advantage of and we hope that you will agree.

But now we thought we’d share with you a few tidbits about the reports so that our regular loyal readers will have some more insight as to what drove us to develop these reports and how we have structured them. First and foremost, we have structured them knowing you will probably not want to sit down and read a 100-page report aimed in the rearview mirror telling you all about last year. Instead, these reports (price perspectives as we have named them) examine just the basics nothing more and nothing less. Each report ranges in length from 7 13 pages. Wherever possible we have attempted to include MetalMiner IndX(SM) data, production cost models (you will find those in the aluminum and steel reports) as well as key road signs to watch as you coordinate this year’s purchases, and later in the year, your 2011 budgets.

Each report comes either as a single or as part of a yearly subscription in which you would receive one report per quarter. And of course, we offer volume discounts! Unfortunately, we will not launch with a few reports, namely tin, gold/silver, ferro alloys and aerospace metals. We will endeavor to get those reports completed inside of February.

And as always, please drop us a line with your feedback. We get a lot of great ideas from you!

–Lisa Reisman

AT Kearney recently published a report called “Mining + Steel How Will M&A Play Out? The report raises some interesting points and theories on what M&A activity might look like for the steel and mining industries and perhaps of greatest interest, why those activities will take place. We’ll limit our discussion to what we consider the most interesting points.

Those points center on the following concepts. The first, though at first blush appears obvious may not appear as common knowledge to many sourcing professionals large global diversified conglomerates have larger market caps than their single commodity peers, within the mining industry. The second concept that we found intriguing centers on AT Kearney’s “Merger Endgame Theory which suggests, “all industries will consolidate globally over a roughly 25 year horizon in four stages. The third concept that supports much of what we have reported on MetalMiner, centers around the correlation between iron ore and steel prices (which according to AT Kearney that correlation has increased since 1998). Finally, the report suggests four M&A scenarios involving mining companies and steel mills with the likeliest scenarios involving mining consolidation and steel consolidation (vs. steel firms buying mining firms or mining firms buying steel firms).

What can we take from the first point that market cap increases when mining companies have diverse vs. less diverse portfolios? AT Kearney makes the point that global mining firms remain highly fragmented so plenty of consolidation opportunity exists. We’d go one step further by stating that the high stakes game for “shoring up raw material supplies in all metal supply chains will also play a role in these global M&A deals and we’ve just started seeing this for some of the rare earth and critical metals supply chains (see our recent post on Posco’s investment in PAL, a lithium project).

We won’t comment on the Merger Endgame Theory except to say it’s interesting and we’d encourage readers to click through to the report just to look at the theory.

The third point, suggesting iron ore prices and steel prices more tightly correlate then they did previously should not come as a surprise to anyone. As the Big 3 iron ore producers now have 70% of the iron ore market, we’d expect that to be true. Based on our own regression models, however, several other factors also tightly correlate to steel prices besides iron ore. Finally the four M&A scenarios outlined in the paper examine several rationales for the various scenarios. These include increased consumption, resource scarcity, improved technology, globalization and increased regulation. The report predicts an increase in M&A activity, “if these industries grow significantly, companies will have cash to invest and will face pressure to deliver better results, which means M&A will be the most logical strategy, the only damper to that scenario rests on the overall health of the global economy. But a weak economy will also drive more M&A deals as cash-rich firms search for discounts. So no matter which way things go, we can expect a lot more M&A in the mining and steel industries.

Now what that will do for price stability or volatility, well that’s a subject of another post!

–Lisa Reisman

STEEL-PRICES_011810_02

1 961 962 963 964 965