Articles in Category: Sourcing Strategies

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The International Lead and Zinc Study Group released its initial 2017 report, which found the global market for refined zinc metal was in deficit over the first 11 months of last year with total reported inventories declining over the same time frame.

The ILZSG revealed a significant increase in Chinese output while the world’s zinc mine production fell overall by 1.2%.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

“Global refined zinc metal production over the first eleven months of 2016 was at the same level as the corresponding period of 2015 with increases in China and the Republic of Korea offset by reductions in Australia, India, Japan, Mexico and the United States,” the ILZSG report stated.

The rise in worldwide demand for refined zinc metal, to the tune of 3.5%, was mostly due to an 8.8% increase in Chinese apparent usage with European demand at the same level in 2015 and US demand falling 12.7%.

Also of note: Chinese imports of zinc contained in zinc concentrates represented a 42.3% decrease compared to the same time frame in 2015 with the Far East nation’s net imports of refined zinc metal growing 7.9%.

Zinc Benefits from Investor Interest

Our own Stuart Burns wrote last week that aluminum has benefited from renewed investor interest, particularly over the course of 2016, but that it hasn’t experienced the same jolt as zinc and copper have seen.

“Although net long positions have been trimmed back following some recent significant deliveries into LME warehouses, the consensus remains positive regarding prices for 2017,” Burns wrote.

How will zinc and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Lead ore. Source: Adobe Stock.

The International Lead and Zinc Study Group released its initial report for 2017, which found world refined lead metal supply exceeded demand during the first 11 months of last year with total reported stock levels increasing during that same time frame.

The ILZSG report identified reduced output in China, India, Australia and the U.S. as contributing to the overall reduction in global lead mine production, to the tune of 7.5%, over the first 11 months of last year when compared to the same time frame in 2015.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

The ILZSG states: “World production of refined lead metal decreased by 1.2%. This was primarily due to a fall in Chinese production which more than balanced increases in Australia, Kazakhstan and the Republic of Korea (South Korea).”

Furthermore, the 9.1% reduction in Chinese demand was offset, in part, by a 9.5% rise in European usage.

“Chinese imports of lead contained in lead concentrates totaled 697,000 metric tons, a decline of 24.6% compared to the first eleven months of 2015,” concluded the ILZSG’s January report on lead.

Lead Buyers Saw Ample Opportunity to End 2016

Just last month, our own Raul de Frutos wrote about metal buyers finding good opportunities to time their purchases with prices pulling back following a bullish run. For lead in particular, de Frutos wrote:

“Zinc’s cousin, lead, is also retracing near an area where we should see investors coming in to support prices. If this year’s bull market is set to continue, which for now we continue to expect it to do so, lead buyers will find a good opportunity to time their purchases if prices rebound at these levels.”

How will lead and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

tin-ore

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Last week, tin prices on the London Mercantile Exchange increased but the real story has been overall commodity pressure to begin 2017.

According to a recent report from the Economic Calendar, tin has ebbed and flowed in a narrow range to begin the year with last week’s upward move attributed to “a slight pullback in the value of the U.S. dollar.”

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

Donald Levit wrote: “Tin experienced a positive performance in 2016 amid solid demand from China with idled domestic tin capacity resulting in the need for higher imports. However, concerns are that China will start to ramp up its idled capacity, and that will change the market.”

China’s manufacturing PMI registered higher than expected recently, adding to tin’s momentum. In November, China imported more tin ore and concentrates with refined tin imports falling off substantially, the news source stated.

How will tin and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

A 2014 Bureau of Labor Statistics report showed that companies in the top quartile of inventory turnover tend to have no more than three to four days of raw materials on hand. For metals suppliers this could lead to shortages and disrupt customers’ supply chains.

Two-Month Trial: Metal Buying Outlook

Supply chain financing, though, can help buyers and sellers work to manage supply and cost issues. The role of supply chain finance is to optimize both the availability and cost of capital within a given supply chain by aggregating, packaging, and utilizing information generated during supply chain activities and matching this information with the physical control of goods.

If you’re buying metals for product manufacturing, for example, it can be beneficial to have the cash-flow flexibility of supply chain financing, especially if you’re a smaller manufacturer. In supply chain finance, an agreement is made between the buyer and supplier to use credit facilities or other financial instruments to bring down costs and risks for both parties.

Buyers can utilize “buy now, pay later” open account transactions which can be counted as regular payments for a continuing flow of goods rather than specific transactions or set prices and quantities. Buyers can extend payment terms with their suppliers. Suppliers, such as metals service centers, can use their credit ratings to bring in customers who, without support from banks, might otherwise not be able to do business with them. Other third-party financiers can also join in the agreements and assist either side with loans or other financing instruments.

In aerospace and defense, this could mean optimizing purchasing across a global supply chain. SCF provider Taulia recently announced a partnership with Exostar, which provides cloud-based solutions to the sector, as well as to the life sciences and health care sectors. There are more than 100,000 aerospace and defense corporate buyers using Exostar’s solutions that now have access to Taulia’s supply chain finance offerings. Taulia’s SaaS product is being integrated directly into the Exostar interface so if you’re a small manufacturer providing electronics or metal parts, you could have the same buying advantages of a larger organization.

Earlier last year, TradeRocket and Hitachi Capital America entered a similar agreement. TradeRocket provided Hitachi Capital with a pool of mid-market buyers (companies with annual revenues of $25 million to $500 million) who, once underwritten, would be able to use TradeRocket’s early pay invoice option to its entire supplier network.

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Giving buyers payment flexibility and suppliers access to new markets is a win-win for both bottom lines.

Set of copper pipes of different diameter lying in one heap

Copper prices increased last week on the heels of Chinese data indicating inflation growth, reassuring strong demand from the world’s largest consumer of the metal.

According to a report from MarketWatch, copper for March delivery grew 2.9% on the Comex division of the New York Mercantile Exchange last Tuesday, which was the largest one-day increase in nearly two months.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

“The 2017 growth rate was supported (by) much faster than expected project ramp ups in Peru in particular, and much lower than statistically normal rates of production losses through the year,” Citi wrote, according to the news source. “We believe both of these factors will be difficult to replicate in 2017.”

Overall, a weaker dollar was supporting metals and, in the short-term, a reduction in copper stocks in LME warehouses indicates a tighter market, which could further boost prices.

Copper Bounces Back from December

Our own Raul de Frutos wrote recently that copper prices declined some in December, along with other industrial metals, but the bull narrative is still in effect:

“The recent price decline in copper prices wasn’t that dramatic. So far, it seems like the bulls are still in control. A strong dollar and a possible slowdown in Chinese demand are factors that could bring prices down. Up until now, China’s demand looks strong and the dollar hasn’t had a big impact on metal prices. Therefore, we need actual reasons to turn bearish on copper,” he wrote.

How will copper and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

What will 2017 bring for the steel industry?

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

At the beginning of the year, it’s always fun to look forward and pick out some of the themes for the year. 2016 was certainly volatile as hot-rolled coil pricing went from $360 a ton to $600/ton, then back to the low $400s/ton before recovering to $600/ton. Phew! Read more

Copper prices retraced in December. After the huge price run in November we were expecting to see some profit taking as prices need to digest gains.

MetalMiner Price Benchmarking: Current and Historical Prices for the Metals You Buy

So far, the decline has been limited, with prices holding above $5,500/mt. Although copper has lost some of its post-election gains, it still managed to end 2016 with decent yearly gains, suggesting that sellers are not totally in control.

Copper’s Bullish Narrative

One of the key factors supporting copper prices is the earlier-than-expected supply deficit. While most analysts were previously projecting the copper markets to move into deficit by the end of the decade, many of them are now expecting a deficit as early as this year.

Another factor supporting copper prices is higher energy prices. Oil prices, the main benchmark for energy prices, regained the $50/barrel level in December. Saudi Arabia said it could be ready to cut output more than originally agreed upon at the latest Organization of Petroleum Exporting Countries meeting. Non-OPEC countries, including Russia, also agreed to an output cut north of 500,000 barrels a day. Energy is key in the metals industry. For copper, energy can form almost 20% of the production costs.

President-elect Donald Trump’s proposed infrastructure investments are also positive for copper prices. However, in our view, the key demand driver continues to be China, by far the largest consumer of the red metal. China’s Caixin manufacturing purchasing managers’ index rose to 51.9 in December from 50.9 in November and beat market expectations. That figure marked the sixth straight month of growth and the strongest upturn in Chinese manufacturing conditions since January 2013.

What Could Add Pressure to Copper Prices

The better-than-expected demand from China explains the ongoing strength in industrial metal prices. However, there are concerns that the country’s demand growth rates could slow next year. The real estate and automotive sectors are the engine propelling this rapid growth. If the demand growth from these sectors slows, this could have strong repercussions on China’s demand for industrial metals.

Another factor to watch is the ongoing strength of the U.S. dollar. Copper is no different than other commodities that have a negative correlation to the dollar. Further appreciation of the dollar could negatively impact copper prices. Higher interest rates in the U.S. are among the factors contributing to a stronger dollar. In December, The Federal Reserve raised interest rates by a quarter point, as expected, but policymakers signaled a likelihood of three increases in 2017, up from prior expectations of two moves.

What This Means For Metal Buyers

The recent price decline in copper prices wasn’t that dramatic. So far, it seems like the bulls are still in control. A strong dollar and a possible slowdown in Chinese demand are factors that could bring prices down. Up until now, China’s demand looks strong and the dollar hasn’t had a big impact on metal prices. Therefore, we need actual reasons to turn bearish on copper.

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To begin 2017, aluminum prices inched higher with the U.S. dollar retreating and traders awaiting clarity on the market.

According to a recent report from the Economic Calendar, downward pressure on aluminum has been the story since December, but over the course of 2016 the metal saw a 13% increase. The reason? falling supply with the closure of capacity while demand grew as the result of China’s infrastructure initiatives.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

Donald Levit, writing for the Economic Calendar, said: “Even though it is typical for aluminum prices to retreat in late fall and winter, prices held steady through mid-December after Donald Trump won the U.S. presidential election in November. Trump made a campaign promise to move to further stimulate the U.S. economy, and that stimulus could potentially include infrastructure spending. That would boost aluminum demand.”

What does 2017 have in store for aluminum prices? Volatility could be the word with traders attempting to assess how the market will evolve as the year progresses.

The Auto Industry and Aluminum

Our own Raul de Frutos echoed the sentiments of aluminum’s struggles in December after a 2016 of growth. But what does the auto industry have to do with it? Raul writes:

“The auto industry is a key driver of aluminum demand. Auto sales in US and China (the world’s biggest car market) finished the year on a strong note. Total vehicle sales in the U.S. hit an 11-year high in December, aided by a fourth-quarter surge in demand that exceeded expectations. In China, car sales hit an all-time record in November, up 17.1% year-on-year.”

How will aluminum and base metals fare in 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

Ed. note: Jonas Divine currently serves business intelligence leader at Atlas Holdings, a private investment firm based in Greenwich, Conn., that recently acquired Atlanta-based Merchants Metals. He has contributed before to our sister site, Spend Matters, on the topic of blockchain and P2P networks, and we just published Part 1 of his most recent article on SM, titled: Bleeding on the Bayou: Procurement Near-Misses in Times of Price Volatility.

Here is an excerpt:

Fred Farmer’s interminably slow drawl echoed off the rickety galvanized siding of his Louisiana-based hot-rolled steel tube factory, unfortunately located on the banks of a bayou threatened by frequent floods and the occasional alligator infestation.

“2-3/8 pipe…4-1/8 pipe…6-3/8 aluminized…6-3/8 anodized…6-3/8 black vinyl coated…6-3/8 green vinyl coated…”

Farmer’s proud and emphatic articulation of his exhaustive product catalog called to mind a veritable Bubba Gump of the steel tube industry. He was born and raised in a rural Louisiana town called Ponchatoula about 50 miles outside of New Orleans, and rose up the ranks from maintenance to line supervisor and ultimately CEO after his uncle Willy succumbed prematurely to a heart condition (most likely brought on by decades of fried alligator and beignets consumption).

In his second-quarter-of-2008 earnings conference, Farmer introduced his third-generation family business to its new owners, an investment company represented by a team of Boston-based former management consultants with a strong affinity for 2×2 matrixes, Porter’s Five Forces diagrams and Starwood rewards points. The acquisition had barely closed a month before this distressed middle-market enterprise with flagging sales experienced a precipitous rise in raw material costs, driven largely by China’s insatiable appetite for iron ore.

After Farmer finally exhausted all possible combinations of product sizes and features, he “saw a 4% decline of topline year over year combined with rising operating costs leading to a 15% decline in EBITDA.” The tone and content landed as nothing short of a death knell to those of us responsible for turning this ship around, and one of the most critical concerns for the remainder of the year was when to purchase raw materials given that rising commodity costs had contributed significantly to Farmer’s margin compression.

Over the course of my time spent advising on supply chain matters at this new acquisition, I learned how important it is to resolve questions on how to purchase as much as or more than those dealing with when to purchase.

Read the full article on Spend Matters here.

Before joining Atlas Holdings, Jonas managed supply chain and procurement departments at some of the largest mining and metals processing companies in the world, and led business transformation projects involving technology upgrades, new ERPs, and procurement platforms. He holds an MBA from MIT Sloan School of Management and a BA from Columbia University. Contact him at jonas[dot]divine[at]alum[dot]mit[dot]edu

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Steel rebar prices in China dropped more than 2% to end 2016, reversing previous gains made earlier in the final week of the year.

According to a report from Reuters, coke and coking coal also remainder under pressure due in part to concerns about slowing demand from volatile trading that typically takes place at the end of the year.

Want a short- and medium-term buying outlook for aluminum, copper, tin, lead, zinc, nickel and several forms of steel? Subscribe to our monthly buying outlook reports!

“The pullback shows traders are not confident about the steel market and future demand during the winter,” Wang Yilin, steel analyst at Sinosteel Futures, told Reuters.

For the week leading up to the New Year, steel prices have been seesawing back and forth due to low turnover from major international exchanges having the ‘Closed’ sign up for the holiday season.

It’s also important to note, cites Reuters, that steel mills usually curb output in a slow construction period, which is typically the case during the winter months ahead of the Chinese Lunar New Year holiday.

2017: the Year of Steel?

Our own Raul de Frutos recently covered the top 3 reasons why steel prices will rise in the next year. He cites a Trump presidency and investors betting on steel companies, as well as rising Chinese steel prices and an overall industry metals boom as those reasons.

“We are witnessing powerful moves across the board. Even copper, a metal whose fundamentals didn’t look appealing, recently rose near 20% in a matter of days. The bullish sentiment across base metals is another reason the expect a rebound in steel prices,” de Frutos wrote.

How will steel and base metals fare for the remainder of 2016 and into 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds: