Articles in Category: Sourcing Strategies

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President Joe Biden’s latest executive order seeks to secure a variety of important supply chains.

For example, in one higher-profile case, General Motors recently announced it would extend downtimes at several plants as a result of a semiconductor shortage.

As we’ve noted in our Rare Earths Monthly Metals Index (MMI) series, rare earths supply has long been a point of concern for the US, particularly the Pentagon. (Recently, MetalMiner’s Stuart Burns delved into China’s overwhelming control of the rare earths processing market and indications Beijing is considering tighter rare earths export regulations.)

In that vein, the president’s latest executive order — his 33rd in just over a month in office, which the White House said he would sign Wednesday — aims to secure those critical supply chains.

The White House said the order focuses on six key areas:

• the defense industrial base
• the public health and biological preparedness industrial base
• the information and communications technology (ICT) industrial base
• the energy sector industrial base
• the transportation industrial base
• supply chains for agricultural commodities and food production

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This morning in metals news: officials held a groundbreaking ceremony at the AM/NS Calvert mill earlier this month; President Joe Biden is expected to sign an executive order that calls for assessments of several critical supply chains; and US housing starts fell in January.

AM/NS Calvert officials hail expansion project

Officials celebrated the imminent expansion project at the AM/NS Calvert mill in Alabama with a groundbreaking ceremony earlier this month, al.com reported.

The Alabama mill is a 50/50 joint venture of ArcelorMittal and Nippon Steel. In December, ArcelorMittal completed the sale of most of its North American assets to Cleveland-Cliffs.

However, the AM/NS Calvert mill is one of the few assets not included in the sale.

Last August, ArcelorMittal announced its intention to build an electric arc furnace at the mill.

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Biden to sign executive order for supply chain assessments

President Joe Biden will sign an executive order calling for assessments of various US supply chains, Yahoo News reported.

The order will call for assessments of supply chains for semiconductors, medical supplies, rare earths and electric car batteries.

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In just over two weeks, President Joe Biden has signed 28 executive orders aimed at a wide variety of issues.

The orders range from Medicaid to the country’s pandemic response to augmenting public health supply chains.

Relevant to metals, Biden signed two orders aimed at increasing domestic content in federal procurement and the climate crisis.

“Both President Biden and President Trump, as part of their initial rounds of Executive Orders, each prioritized ‘Buy American’ type provisions — a notable point of similarity between two very different administrations,” said Alex Hontos, partner at international law firm Dorsey & Whitney.  “Indeed, aspects of President Biden’s Executive Order are very similar to President Trump’s 2017 Executive Order. However, President Biden’s Executive Order contains more directives than Trump’s BA Executive Order did.”

Biden’s ‘Buy American’ plan

Government plans seeking to increase purchases of domestically produced goods are nothing new.

In July 2019, Trump signed an executive order titled “Maximizing Use of American-Made Goods, Products, and Materials.” In the order, Trump said his administration would “enforce the Buy American Act to the greatest extent permitted by law.”

The order called for the Federal Acquisition Regulatory (FAR) Council to consider proposing an amendment to provisions in the Federal Acquisition Regulation regarding classification of items as being of foreign origin.

For iron and steel products, that meant “the cost of foreign iron and steel used in such iron and steel end products constitutes 5 percent or more of the cost of all the products used in such iron and steel end products.”

For all other end products, the percentage would increase to 45%.

Fast forward to 2021 — what does Biden’s executive order on the issue of promoting domestic content in federal procurement?

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Steel is the world’s second-largest commodity after crude oil. It is 15 times the size of all other metals markets combined in terms of metric tons. Furthermore, it is worth twice their value.

Yet, until recently, it was an industry that saw little use for a futures market. That is primarily because major steel participants enjoyed stable long-term prices for the materials they needed.

Price material volatility

Prices for iron ore and coking coal, two of the essential raw materials for steel production, have become far more volatile in recent years. That volatility has sent price shocks rippling through the supply chain. In turn, it has created volatility in finished steel prices that consumers are desperate to contain.

Enter the major futures exchanges. For over 200 years, the London Metal Exchange (LME) has provided the trade – producers, traders and consumers – the opportunity to hedge their risk across a growing range of base metals.

However, only recently have exchanges such as the LME, the U.S.’s CME and the Shanghai Futures Exchange (SHFE) in China introduced products allowing the trade to hedge raw material and finished steel price risk.

Do you know the five best practices of sourcing metals, including steel?

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Could the coronavirus pandemic bring about more reshoring in the U.S.?

The question is not just of interest in the U.S. By many measures, Europe has been hit as severely by the pandemic. If anything, Europe is even more reliant on global supply chains than the U.S.

The political philosophy that underpinned the Trump administration’s efforts to slow China’s advance — that is, to bring jobs back to the U.S. and “level the playing field” — is also prevalent in Europe. However, in the more fragmented political environment of the E.U., that philosophy is arguably taking longer to come into focus.

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Supply chains, reshoring and a ‘great reset’

Disruption to supply chains due to lockdowns was a relatively short, albeit very sharp, shock.

Automakers temporarily shut down Japanese production lines due to a shortage of parts from China in Q1. Furthermore, there is ongoing chaos at European, particularly U.K., ports due to a host of pandemic-related factors.

Supply chains far and wide have struggled during 2020. These challenges are prompting many to ask: is this the jolt needed to stimulate a great reset?

As The Economist notes, there can be a business case for it, too.

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Before we head into the penultimate weekend of 2020, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner, including: research findings related to organic molecules’ impact on machinability; gold prices; and the arrival of an allocation market for steel-buying organizations, as explained by MetalMiner CEO Lisa Reisman:

Week of Dec. 14-18 (machinability, gold prices and steel allocation market)

• Stuart Burns delved into the gold price and what 2021 may hold for the precious metal.
• The Energy Information Administration released its Short-Term Energy Outlook.
• Nippon Steel is increasing emphasis on export markets.
• The shipping industry continues to face a number of challenges this year, from container shortages to port congestion.
• The European Raw Materials Alliance recently launched the Rare Earth Magnets and Motors Cluster, aimed at developing solutions to strengthen supply chains.
• Earlier this month, MetalMiner released the December update to its Annual Outlook originally published in September.
• This month’s Global Precious MMI includes gold prices, the weakening dollar and PGM price movements.
• Elsewhere, the U.S.’s share of power generation from renewables is forecast to rise slightly next year.
• Rio Tinto announced a $10 million investment toward its joint research with Chinese steelmaking behemoth Baowu Steel Group on greener steelmaking processes.
• Burns checked in on the Brexit saga, as the Dec. 31 transitional period deadline draws near.
• We touched earlier on Nippon Steel’s efforts to augment exports. Meanwhile, Christopher Rivituso on Severstal’s intention to look to export more large-diameter pipe to the North American market.
• Meanwhile, import prices rose slightly in November.
• “A” is for allocation in steel markets, Lisa Reisman explained.
• Lastly, a research team from Purdue University, Osaka University and the Indian Institute of Science published findings on the impact of organic molecules on machinability of metals.

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Not so long ago on a fall night here in Chicago, I had the opportunity to meet up with a couple of folks from a steel producer. 

What they told me then sounded a little scary — they suggested the “A” word — but not nearly as scary as current market conditions suggest. 

In metals markets, the “A” word does not contain three letters. 

It does, however, connote something far worse for many metal buying organizations: allocation!

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Dreaded allocation

Allocation markets cause sleepless nights for procurement professionals because, without material, lines get shut down and businesses fail to operate profitably. 

Undoubtedly, the dreaded “A” word is upon us, particularly for steel markets.

Back in May of this year, toward the end of the last COVID-19 “surge,” MetalMiner contemplated what could happen to steel prices once demand came back onstream.

MetalMiner saw two scenarios: a gradual increase in demand followed by panic buying or a rather dramatic increase in demand led by the automotive industry, combined with slow mill restarts and historically low starting inventory levels held by service centers. 

We assumed the first scenario, but obviously the second ensued.

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Aerospace may be down, automotive is coming back, albeit going through immense change from internal combustion engine (ICE) to electric vehicles (EVs), but one sector of the aluminum market that is brewing up a storm is the aluminum can market.

Are you prepared for your annual aluminum contract negotiations? Be sure to check out our five best practices. 

Aluminum can market tightens amid pandemic

The media has been awash with reports for months now that the aluminum can market is really tight. As lockdowns hit this year and bars either closed or saw falling attendance, consumers switched to supermarkets and liquor stores for their soft and beer beverages.

Beer and soda sales have held up well and are actually increasing for some. But where brewers and drinks producers sold volume through hospitality outlets and delivered in kegs, they now have to meet demand in six-packs from supermarket shelves.

The switch to aluminum cans has been unprecedented. “For the most part, the North American can industry is sold out for the next 24-36 months, and we don’t see the supply chain catching up to real demand until 2025-26,” Credit Suisse said in a recent report.

According to SPGlobal, U.S. producer shipments of aluminum can stock for the domestic market in the second quarter rose 5.5% year over year to 912.5 million pounds. Meanwhile, in the first quarter, Aluminum Association data show U.S. imports of aluminum can sheet reached 118.18 million pounds. That figure compares with 71.59 million pounds in Q1 2019 — a 65% jump.

And therein lies the problem.

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The widely, if not universally, held belief that globalization is a win-win panacea for growth has never looked shakier.

While President Donald Trump has led the charge on calling out the failings of unfettered engagement with China and all that entails in terms of loss of manufacturing capability and sharing of hard-won technology, he is by no means alone.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Globalization and China

There is a growing groundswell of opinion that the long-held liberal beliefs that engagement would change China’s behavior have proved flawed.

China today is arguably more centrist, more actively and belligerently nationalistic and worryingly less influenced by world opinion than it has been for decades.

And yet it has, from an economic point of view, proved remarkably successful so far.

China’s economy has bounced back faster than those in the West. Furthermore, its economy has recovered faster than even its close Asian neighbors. That is because, in part, the party’s control meant it could enforce harsh — compared to in the U.S. or Europe — lockdown measures in the face of the pandemic. That enforcement extends to continued adherence to social distancing and hygiene standards since.

It is unlikely that a change of president in January, were that to happen following the November election, would have a meaningful impact on U.S.-China relations. A Biden presidency may try to foster a more collaborative international approach. However, the direction would likely be similar.

Europe, too, is following a less bellicose but similar path.

Europe’s investments in China and reliance on China as a trading partner are greater than that of the U.S., for whom China trade still represents a modest percentage of GDP.

Yet, even in Europe, there is increasing talk of decoupling supply chains and restrictions of technology transfers to China. Furthermore, these is talk of restricting Chinese technology companies’ access to the European market.

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It was another action-packed week in the world of metals, including coverage from Stuart Burns on the rising copper price, developments in the rare earths sector and the release of the MetalMiner 2021 Annual Outlook report.

The 2021 Annual Outlook is an invaluable resource for metals buyers preparing to set their spend for the year ahead. The Annual Outlook includes analysis of key price drivers, support and resistance levels, and average prices. In addition, the report features detailed analysis of 10 key metals.

For more information on how to subscribe to gain access to this year’s report, visit the dedicated landing page for the 2021 Annual Outlook.

Before we head into the weekend, let’s take a look back at the week that was:

Week in Review, Sept. 7-11 (rising copper price, RARE Act and more)

• U.S. construction spending in July came in about flat compared with the previous month.
• Two Texas Congressmen earlier this month introduced the Reclaiming American Rare Earths (RARE) Act.
• Stuart Burns on India’s economic and coronavirus struggles.
• Speaking of India, Sohrab Darabshaw delved into the state of the country’s aluminum sector.
• The U.S. steel sector’s capacity utilization rate jumped by two percentage points last week.
• Copper has outperformed other metals this year — but are its fundamentals really as strong as they seem?
• MetalMiner released its 2021 Annual Outlook report, offering a comprehensive and detailed analysis of metals markets as buyers make budgeting decisions for the year ahead.

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