Articles in Category: Non-ferrous Metals

Is the rise in metal prices really so inevitable? We usually place considerable weight on articles appearing in Purchasing.com, but I have to take issue with a feature from yesterday which suggests metals will continue to rise on the back of power problems around the world. Certainly the first quarter of this year has seen it’s fair share of power problems, but many of them are unlikely to be repeated — nor was power the sole driver behind first quarter price rises. For example, the bad weather in China caused power problems, but it was a one in 50 year period of severe weather. Also, it is unlikely to be an issue going forward, serious as it was for aluminum, zinc and many ferro alloys. Power stations may be closed or run at reduced capacity for the Beijing Olympics, but so will the power hungry industries those power stations fed. The power problems affecting aluminum,  precious metals  and ferro alloy production in South Africa are more entrenched, but they were significantly exacerbated by heavy rains, as were the flooding of Queensland’s iron ore mines  — neither of which is likely to be of such magnitude again in the coming months. Somehow  I don’t see power being the deciding factor. It will have an influence in certain situations, but the extent to which demand continues to grow will be more of an issue.

–Stuart Burns

Although our blog readership is steadily growing, we seem to be misperceived by many as being quite “niche”. It is true to say that we aren’t going to be writing about Britney Spears or Paris Hilton (unless they happen to don some new metalized bra or something) but to say that the metals industry is “niche” is just, well, downright idiotic. And I love to report the statistics because there are so many of them which show how our readers represent an absolutely massive industry. To wit, January and February imports of unfinished metals associated with durable goods output totaled $12 b (and yes, that is b for billion). The US imported $6 b of finished metals associated with durable goods output during those same two months. So that is $18b of metals related imports in the first two months of the year and I haven’t even counted the metal content associated with six other categories (such as automotive vehicles, parts and engines and durables, manufactured except automotive). Hmm… think there are metals in those categories? These are just a small glimpse at the import numbers  — we’re talking over 100 billion dollars of imports annually in a lousy year for imports! Check out the numbers! I’ll cover the domestic numbers in another post. But please, whatever you tell me, don’t say that we are playing in a “niche” market.

–Lisa Reisman

Here’s an old idea that has caught the attention of commentators  this week but  with a new twist due in large part to the high price of the metals involved. Metals and material have been recycled for decades and in many countries considerable encouragement is given by governments in an effort to reduce raw material and energy consumption. But the rise in the price of gold, silver and many other metals used in the electronics industry has given the recycling of mobile phones, laptops and other electronic devices a major boost and promoted the phrase urban mining. The figure that caught my eye was a direct correlation to the mining industry ” one ton of ore from a gold mine produces just 5 grams (0.18 ounce) of gold on average, whereas one ton of discarded mobile phones can yield 150 grams (5.3 ounces) or more, according to an article in Reuters.

The article goes on to say the same volume of discarded mobile phones also contains around 100 kg (220 lbs) of copper and 3 kg (6.6 lbs) of silver, among other metals. Hence the phrase urban miners used to describe the recycling industry that has grown up around this resource. The company being reported, Eco-System of Honjo, Japan typically produces about 200-300 kg (440-660 lbs) of gold bars a month with a 99.99 percent purity, worth about $5.9 million to $8.8 million. That’s apparently the equivalent of a small gold mine.

In a country with 128 million people with over 80% mobile phone ownership and who on average change them every 2 years 8 months, you would think there would be a never ending supply of raw material. But you would be wrong, only 10-20% of the phones discarded each year are recycled. Why? Largely because of fears that the phones contain personal data, people horde them away rather than risk releasing them for recycling. As PC’s, laptops and now even mobile phones have become the gateway to our bank, share dealings, health records, and in fact every item of sensitive data in our lives the risks are perceived to be ever greater of letting them fall into the wrong hands. Particularly in Japan where the use of the mobile phone is more advanced than in the US or Europe, phones can be used for payment of bills, move funds around bank accounts, pay rail and bus fares. Indeed the mobile phone is becoming the mobile wallet.

It does raise an interesting concept though.

As the world’s reserve of metals becomes ever smaller, to what extent can we access those already used and available in manufactured goods? Certainly we have only scratched the surface so far and the high prices of all metals will encourage this resource to be pursued much more vigorously in the future.

–Stuart Burns

There are constant news reports on stolen metals: Bridges disappearing overnight, copper pipes stolen from homes, and large, bronze statues disappearing from the streets.  

Delaware State Police have decided to take a bite out of metals crimes, creating new rules for businesses which cover some of America‘s most stolen metals, including copper, brass, gold, and silver. WBOC suggests that these rules will stop metals thieves from striking: Pawn shops and scrap metal processors  that sell  metal  now  have to wait 18 days after purchasing  the metal  to sell it to a new customer. This gives police the opportunity to investigate when a potential victim claims property was stolen.

In addition, some of these shops will need to register with police for a sales license, as well as keep track of all sales to the store.  While securing a sales license and collecting information about sales shouldn’t harm businesses, some business owners worry that the 18-day wait before selling to new customers will hurt their own  operations, especially considering the fluctuating prices of metals in the economy.    
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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.

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Zinc is one of few commodities that appears to be bucking the trend of relentless price increases. The metal has come off from USD 4260/ton last year to below USD 2300/ton this year driven by a perception that supply exceeds demand. Where will it go from here?

Zinc consumption has been increasing at something like 3% globally although as you can imagine, demand has not been uniform. China, the world’s largest producer of concentrates (27%) and of refined Zinc (30%), has increased consumption by 15.2%, ahead of India at 7% and Europe 2.3% according to the International Lead & Zinc Study Group, more than off- setting a drop in demand from the USA, Japan, South Korea, Taiwan and Australia. At the same time, production has been rising at 5% wiping out a deficit of 352,000 tons in 2006. Consequently, world stocks have been steadily rising from 459,000 tons in 2007 to over 700,000 tons this year, according to www.abareconomics.com. Mirroring this, LME stocks have risen 46% year on year from 89,000 tons to 130,000 tons today.

New mines came on stream last year in Peru and old mines were re-started in the US. In addition, decisions were taken on new facilities in Finland and Mexico which will add another 200,000 tons per annum of production this year. New production facilities at Vedanta Resources, India and elsewhere have also come on stream this year. So production is up and consumption is slowing; does that mean prices have further to come off? Probably not, it looks like this supply balance has been factored into the current prices and all other things being equal (no general collapse in commodity prices, no flight of investment funds, major power shortages or strikes ” a big list!) prices will most likely stay around current levels for this year and well into next.

The China National Development and Reform Commission has set out a number of standards that facilities will be required to meet in the future which could reduce production in China and/or raise costs. Price support is seen more from production restraints and threats than a belief that demand is going to suddenly improve. Zinc is used in many applications but the principal ones, galvanizing steel and alloying with copper both have high exposure to the automotive and construction industries. No surprises then that demand is down in the West and up in Asia. We don’t see the situation improving this year in the West but there could be some cooling in the Chinese and Indian economies as demand softens in Europe and continues subdued in the US. Although we expect demand in China to remain robust it will most likely come off the highs seen last year and during the first quarter of this year. We expect Zinc to be trading in the USD 2200-3000/ton range this year rather than testing the USD 4000/ton levels of last.

–Stuart Burns

There is an interesting debate going on in the aluminum world that is quite probably being mirrored  across other metals categories, namely – which way  will the price for semi finished metals go the balance of this year? Aluminum semis prices are driven largely by the ingot price but also by the premium mills can charge for the particular product ” plate, bar, flat rolled, sections, foil, etc.

First, the ingot price. Read more

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

Nothing seems to rattle the tail of a manufacturing organization quite like being asked to participate in a reverse auction. But it is our contention that reverse auctions within the manufacturing sector are way down according to a comment in this article which appeared over on Spend Matters a little while ago. There are several comments in the post worth reading. But I think in context of metals raw materials, semi-finished materials and possibly further worked products containing metals, auctions are down and possibly out but not necessarily for the reasons you might suspect. Read more

I am reminded every day how sourcing strategies in today’s red hot metals markets don’t really resemble the strategies of just a couple of years ago. Today, we learned of a company whose China supplier needed to execute a contract cancellation clause because it couldn’t purchase its raw materials at a price to supply profitably. It’s no surprise as everyone can attest. In addition to rising costs for non-ferrous and ferrous metals, many of the metals needed to make other metals such as cobalt, beryllium, tin, titanium and molybdenum are also in short supply.

So besides signing long term agreements, many western firms use forward contracts, options, swaps etc. But this is not a practice that appears “typical” in most Chinese operations. The notion of Risk Management has yet to hit many global suppliers. Luckily the buying organization, whose contract had been canceled, already developed several alternatives and the impact of the cancelled contract will likely be minimal.

Forward contracts, options, swaps etc are the stuff made of traders but they are also the “new tools” of buyers and suppliers around the world. Check out this post from affiliate blog Spend Matters. New steel futures contracts will create more opportunities for steel buyers. Watch this space for information on NYMEX’s new hot rolled steel futures market to open later this year.

But I digress. I wasn’t going to write about metals futures contracts.

Even though we still predict  some metals prices to drop later this year, I can’t help but wonder how purchasing organizations have modified their negotiation strategies. Or, in some cases, how they may not. According to another post on Spend Matters, “historically, the standard approach to reducing commodity price volatility in the supply tiers was to hammer and threaten individual suppliers in the hopes of avoiding price increases. This often involved threatening the use of “reverse auctions” when market conditions change. Other options included purchasing on the spot market whenever conditions looked unfavorable for on-contract spend and relying on trading companies to individually quote the best possible piece-part price on items. Perhaps the last ditch option was to pass along price increases to customers by increasing the amount you charged for products.”

So what do you do if your supplier cancels a contract because of rising raw material costs? If you re-negotiate with the incumbent supplier but agree upon a higher price – because alternatives may be too difficult to implement – are you perceived ‘as caving in’ to the supplier? In the case of a supply relationship a buying organization hopes to develop for the long term, how would this be perceived in terms of future negotiations? The whole notion of game theory changes when markets shift from buyer to supplier. Buyer sourcing tactics change too. But one thing is for sure, when overseas suppliers start canceling export contracts, a heavy hammer will do no good.

–Lisa Reisman

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