If you get a chance, go see the new movie In Bruge, starring Colin Farrel and Brendan Gleeson. There is a great scene when some American tourists ask Colin Farrel’s character how to get to the top of the Belfry Tower. I can’t tell you Farrel’s punchline, but suffice it to say that to reach the top of the Belfry Tower, one has to climb — and, well, these Americans were in less than perfect shape. Here at MetalMiner, Stuart and I like to discuss and debate various issues. I can’t say that I’m much different from a “stereotypical” American in that I think saving money or making money are two very noble reasons ‘to do something’. We debate this subject because green is one of those topics where the impetus for taking action may be a little different. Hey, it’s not that I’m all about pollution and he’s all about the greater good, but unless someone can show me the money, it’s not likely to get done.
So imagine my delight when I ran across this article in USA Today (of all places) on Subaru’s zero-landfill initiative. The stats are impressive. According to the article, Subaru has managed to recycle or reuse 99.8% of its plant’s garbage. Copper laden slag from welding processes is shipped to Spain for recycling. Steel waste was eliminated by purchasing in sizes that result in less scrap. That removed 102 pounds of steel waste per car! Now some marketing folks might want to emphasize the car maker’s altruistic tendancies….not ruining the earth, it’s desire to be a good corporate citizen. And they aren’t wrong by any means its just that if we were to peel back the onion on many American firms’ reasons for ‘going green’, I think we’d come up with a list that includes: eliminating waste, cost reduction, cutting costs, improving the bottom line, did I say cost reduction? Oh sorry, I’m starting to repeat myself.
Over on SpendMatters, an affiliate blog, I commented on how I think ‘green’ will play out in a recessionary environment. Simply put, green makes sense because it goes hand in hand with eliminating waste. And waste reduction usually equates to cost reduction. We’ve heard arguments against green in the metals industry because well, there is just so many places and things one can do with say slag. But thankfully, companies like Subaru are showing us the way. Heavy industry can ‘go green’ and also ‘lean’. What is also interesting is the play between the two. In the USA Today article, the author Chris Woodyard talks about how some of the JIT operations (a fundamental aspect of Lean), provide opportuntity for green intiatives. With daily deliveries of parts, Subaru takes advantage of empty trucks on the return trip to haul away waste for re-use.
But re-use and recycling will only get you part of the way there. The rest of the challenge involves not creating waste in the first place. Engineering teams today are going beyond ‘design for manufactureabiliy’ to ‘design for sustainability’. And they’ll save a few more dollars in that process as well.
My husband bought a box of cereal a few weeks ago promoting the fact that it was 75% organic. Never mind what the remaining content contained. Always the skeptic, I expect that a good percentage of these marketing claims are just that…”claims”. Over on SpendMatters editor Jason Busch joked that L’Oreal (the make-up company) had been planning some cost reduction strategies. I posted a comment joking that they are likely using re-cycled plastics (to lower costs of course) and then get to slap the “environmentally friendly, green label” to the product line and charge me more in the process.
But these ploys are just for consumer products right?
Apparently not. According to this Popular Science article, industrial products companies are praising the virtues of Titanium. But the substance does not appear to back up the hype. Steel doesn’t command a price premium. What kinds of items are we talking about? Master Lock locks and golf clubs, two products heavily associated with Titanium.
I got a chuckle out of the simple experiments the author deployed to check authenticity of said products. Essentially, “hold any genuine titanium metal object to a grinding wheel (even a little grindstone on a Dremel tool will do), and it gives off a shower of brilliant white sparks unlike any softer common metal” and you know you are dealing with the real thing. If however, you see shorter yellow sparks this may just be stainless steel. And no sparks may be aluminum. Next time you are at Home Depot thinking about a bike lock, you might just consider the house label.
I can’t say that I am shocked by these survey results which were just released over the weekend by buying consortium Prime Advantage. According to the press release, of the 100 member companies that responded to the survey, 46% said that raw materials, “which include stainless steel, nickel, copper and other metals and plastics were a major concern in 2008.” Energy costs came second with 17.5% citing this as the biggest cost pressure.
Given the past two years, it is no surprise that raw material price pressures remain top of mind for purchasing professionals and owners of small businesses. What is ironic is that 66% of respondents “plan significant capital improvements in 2008, including equipment upgrades such as press brakes, turret punch presses, plus equipment for laser cutting, robotic welding and stamping”. On top of that, 59% of respondents expect a revenue boost in 2008.
But aren’t we in a recession? Well, maybe but not all manufacturing has been feeling the pinch. A colleague of mine who is a turnaround professional recently told me that he has seen manufacturing companies whom he thought would never export again, do more of that of late than in the last 10 years combined! Just last week Caterpillar (my favorite economic bell-weather) reported a 20% jump in exports of machinery and equipment in 2007, according to this Crain’s Chicago article. So it’s no wonder that we see companies worry about raw material pricing yet continue to make capital investments.
The state of the US dollar is undoubtedly a boon to many US manufacturers as their exports are now much more competitive. Foreign competition as my partner Stuart rightly points out, is down at the moment but what happens when, “they [US manufacturers] will once again face their normal level of foreign competition… I wonder how bullish they would be then?” Good point but if you are of the school of thought that the dollar had been “wrongly” priced previously due to certain “bubble” industry sectors and the dollar continues to trade as it has been for awhile, we’ll continue to see strong exports. Of course what goes up also goes down and vice versa.
But one thing we can bank on, it appears certain that raw material pricing will remain volatile and a concern for manufacturers.
Editor’s Note: If you are concerned about raw material volatility, take our free MetalSaver quiz for cost savings ideas. –Lisa Reisman
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
The Organization for Economic Co-operation and Development (OECD) in Paris has just released their Composite Leading Indicators (CLI) for the major economies. Despite the dry economic analysis, one can read some very interesting predictions. I should start here by defining CLI as a qualitative rather than quantitative measure of the trends in an economy. A CLI above the long term average of 100 suggests an economy on a growth trend. Below 100 suggests an economy on a slowdown. It can be more subtle than that but for our purposes we are looking at the medium term trend rather then month to month implications. Read more
Many companies look on scrap as a problem to dispose of when in fact it could be viewed as a source of incremental profit and an opportunity to achieve some measure of natural hedging against metal price volatility. Ferrous and non ferrous scrap is obviously a product of any manufacturing process that as a business one seeks to minimize. Any material that is not being transformed into a saleable finished product represents a cost that the business unit has to incur. However unlike virtually all other direct material inputs to a business, scrap has the ability to create a separate revenue stream and as such it deserves its own strategy. Read more
There’s an age-old adage that one thing is constant ” and it’s change. No, I’m not leading into politics and the 2008 presidential election in the States. Rather, let’s think beyond Super Tuesday and look to the metals industry. With all of the metals industry’s longstanding practices, are there really ways for metals and metals-related processes and purchases to become eco-friendly? Rest easy, because the answer is a resounding yes. In fact, the metals industry is the vibrant host to several new ecologically aware innovations, and they might be the key to sustainable growth and development. Read more
The recent power problems in China, largely caused by bad weather reported in our recent article, comes at the same time as widespread power problems in South Africa have affected Ferro-Chrome, coal and precious metal mining.
So much for mining companies, but what of the manufacturers? It is estimated that the Chinese power problems have idled up to 10% of the country’s steel production and several aluminum pot-lines. Power failures are particularly damaging to aluminum smelters because the molten aluminum rapidly solidifies in the cell, taking months to get the cell operating again at a very high cost. So if power is likely to be disrupted, smelters usually voluntarily take pots out of operation to reduce the demands on the grid and ensure reliable supply for those cells left in operation. That is what is happening at Southern Africa’s three smelters, Bayside 190kt, Hillside 709kt and Mozambique’s Mozal 564kt following warnings from South Africa’s power generator Eskom that due to heavy rains they can’t guarantee power supply for the next 4 weeks. We have heard that due to under investment there will be intermittent cuts for the next 4 to 7 years! In addition, expansion plans at Mozal and Hillside and the proposed new Coega smelter of 700kt are all in doubt according to Standard Bank, Leon Westgate, Base Metals Flashnote, 29 Jan 2008. Read more
I received a phone call last evening from a friend in Shanghai. He had asked me if I heard about the power shortages and energy crisis in China. Oddly enough, I had been planning on writing a short piece on how power shortages were having an impact on various metals markets. In China, the country’s largest aluminum producer shut down operations at two plants in Guizhou and Zunyi, according to this recent article in Forbes. With annual production of “320,000 and 110,000 tons respectively”, the loss of this production is bound to have ripple effects in the Chinese and possibly wider markets. No date has been set for when the plants will begin production again. The effect on aluminum prices coming out of China remains to be seen. I have read that the prices of alumina, will drop due to lack of demand but the cost of primary aluminum or semi’s may increase. Read more
While many of you were undoubtedly enjoying your weekend — those of us in Chicago were trying to stay warm in 5 degree weather — I stumbled across an interesting article from the New York Times on how overseas investors are scooping up US companies often at fire sale prices. This should not come as a shock to anyone. All one needs to do is head to a mall and listen to all of the foreign accents. The Brits think there is a two for one sale here on everything and many Europeans are flying to NYC for a weekend getaway and some bargain shopping.
So what does a weekend getaway in NYC have to do with metals? Well, according to the Times article, ThyssenKrupp Stainless just spent $3.7B to build a stainless facility in Calvert Alabama because “of the low cost production of the United States. But that news has been previously reported. What is interesting is the why and the when. Since imports are now so expensive, ThyssenKrupp did what any investor might do and establish a local presence. ThyssenKrupp will now be able to take advantage of NAFTA and position themselves for a larger chunk of the North American stainless market. The goal is a 5% US market share and up to 1M tons of flat rolled product according to the company’s press release on the same subject. According to an article by Recycling Today, “There are 15 prominent manufacturers of stainless steel flat products, three of which (ThyssenKrupp Stainless, the Acerinox Group and Posco) manufacture around 1.8 million metric tons.” This new investment is quite significant.
Perhaps ironically, ThyssenKrupp is pursuing this strategy in the face of sagging profits and sagging demand for stainless, according to this recent Forbes article. But no matter. It’s still a great buyer’s market and there are plenty of foreign firms sniffing around at both American acquisitions as well as greenfield opportunities.
Though some view foreign buying of US companies as a threat, we think it will be a boon to US buyers. From the buyers point of view, competition among suppliers is nearly always a good thing. This new plant will be state of the art if it is to compete in the decades ahead and not only will it increase supply, helping to keep down prices but it will also raise the quality expectations in the wider market place forcing incumbent suppliers to improve quality too.
How can buyers prepare for when ThyssenKrupp comes on stream in 2010? Well, given our 2008 stainless steel price predictions, consider locking in some longer term contracts as prices drop. And maybe, just maybe, buyers will see some better pricing for the longer term.
— Lisa Reisman