Articles in Category: Supply & Demand

It’s an oft-cited fact that the steel price and level of demand is driven by a burgeoning need from China — yet in a recent conference speech, Xiong Bilin of the Chinese NDRC is reported to have said that China has 500 million tons of steel producing capacity and supply exceeds demand. In the same speech, the NDRC went on to explain the reason the authorities have been blocking the involvement of foreign steel companies in the building of new facilities in China: to try to head off a massive excess of production capacity. Read more

It’s holiday time in the States, so the MetalMiner team thought we would take a day off to remember those who have served our country and fought for democracy and our free market system. I refer to affiliate blog Spend Matters for a little bit of history.

In the meantime, between hot dogs and hamburgers, we thought we would leave you with a few links to the more interesting articles and posts we’ve seen this past week, articles that should interest those following the metals industry. We’ll start high level and work our way down:

The first link is an excellent piece on preserving an open economy. Not that we necessarily agree with all of Martin Wolf’s commentary, but it does give us something to think about.

The second piece, totally unrelated to the first, is an interesting analysis of the metals markets from Investor’s Business Daily. Personally, I find the analysis from the financial community sometimes informative and occasionally provocative, while at other times, downright silly. This piece falls in the informative camp and discusses current demand numbers from industries consuming metals.

The third piece, for you metals lovers out there, is a movie recommendation for Iron Man, a film that we might see on this rainy Monday.

Have a safe holiday. See you tomorrow!

–Lisa Reisman

Buying a new car could become more expensive in the approaching months. Last week, automaker Honda Motor Co. announced that higher steel and other raw material costs could cause the company to increase the price of their vehicles. Honda, along with Toyota Motor Corp. and Nissan Motor Co.,  shared expectations of an operating profit drop in the immediate future. Toyota Motor Corp. admitted on Sunday that they are “near a price increase accord with steel suppliers to offset the rising cost of raw materials.” According to Bloomberg, “To help offset rising costs, Toyota plans to boost the price of some U.S. models this month by 0.7 percent on average. Nissan in April raised the price of its Versa compact car and Pathfinder sport-utility vehicle. Honda on May 12 said it is considering raising prices in North America, Japan and other markets.”   Read more

As we have reported previously, nickel prices have dropped  in half from their peak last year, following a combination of grade substitution and massive stock draw downs combining to hit production. When production drops, one automatically assumes demand must have dropped — but apparently demand has remained reasonably steady as stocks have dwindled, and is now forecast to grow this year, according to the Paris based International Stainless Steel Forum ISSF. During 2007, stainless production in the Americas and Europe/Africa declined by almost 12% and 13.3% respectively but is forecast to grow by 3.7% and 4.4% this year. You will not be surprised to hear the largest producer and the greatest growth is forecast to be from China, not least because there are several new plants in the commissioning stage that will shortly be coming on stream creating a 7.3% increase in capacity.  

It’s hard to  agree with the ISSF’s bullish growth forecasts, however,  since North America and Europe have both proved to be surprisingly resilient in the face of weakness in the housing and automotive markets.  I would expect any improvement in demand to be met by the new production capacity coming on stream and prices to hold reasonably steady through 2008. For the US, much will depend on the fortunes of the US Dollar. Continued weakness may prevent consumers from enjoying the benefits of wider import supply options and (as with steel this last year) seeing domestic producers take advantage of a tightening supply market.

–Stuart Burns

An interesting article in Mineweb last week explored the nature of the current base metals market and how contrary to the last few years of relentless rises, some metals have come down substantially over the last 6 months. The article suggests we have a return to fundamentals, meaning supply and demand now drives the markets. Consequently, some metals are still powering ahead like tin,  although others have dropped around 50% from their highs, like zinc, lead and nickel. What has changed from just 6-9 months ago that justifies such a dramatic turnaround? Read more

We don’t necessarily share the analysts‘ predictions that there is an imminent risk of aluminum rising to $3300/mt and beyond this summer — but we can see good support for the metal around current levels af $2900/mt. Where slowing demand is finally resulting in an easing of prices for most metals, aluminum is exposed to the risk of power brown outs disrupting supplies in many markets: Brazil, New Zealand, South Africa and most notably China. Consumption is forecast to grow in China, although we doubt the figure noted of 20-30% will be met this year as the economy cools slightly. Demand is softening in western markets, which will partially counterbalance Asian demand growth, but aluminum is almost uniquely sensitive to power costs as on average one third of the final ingot price is down to electricity. China is particularly at risk as the country has invested heavily in smelter capacity, currently 12.5 million tons per annum, on the back of historically cheap power. With power costs rising on the back of oil, gas increases, and most importantly thermal coal increases, many of these smelters could be marginal as the latest price rises feed through this year.

If capacity is idled and China becomes a net importer, the availability of metal on the world stage will change from the current comfortable balance to dwindling stocks in short order. It’s the risk which is giving aluminum its support.

–Stuart Burns

The headlines read like a used car lot: “They’re cutting back prices!”

But this time, there aren’t cars on the block — and the price cuts could affect those in the metals industry, at least in India. After meeting with Indian Prime Minister Manmohan Singh in New Delhi, leading steel makers in India decided to cut the price of flat products, rebar, and structural steel, due to the claim that current steel prices increase inflation. These new and improved prices, agreed upon this Wednesday, will be prominent for the next three months. Read more

Contrary to expectations earlier this year that the weak dollar would boost exports and shield domestic producers from imports, it looks like US imports are set to rise again, according to the Steel Business Briefing. Sighting import license applications SBB says US applications for April came in at 2.64m metric tons, 16% higher than the March preliminary import count of 2.28m tons, which in turn was higher than February. Interestingly, this is despite a continued decline in steel imports from China, suggesting the export taxes imposed in January by the Chinese authorities are having the  desired effect. For April, China will likely fall to fifth place among the largest steel exporters to the US at 168,000 tons. That lags behind Canada at 646,000 tons, Mexico at 239,000 tons, Japan at 193,000 tons, and Korea at 172,000 tons  — based on the license applications.

So if imports are rising, does this mean increased competition for domestic producers and lower prices for consumers in the months ahead? Not yet, as strong global demand, still rising raw material costs and capacity issues mean prices will be high for the second and third quarter at least. Read more

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.

Read more

This is Part Two of a two part series. You can read Part One here

The Baltic Dry Index which tracks the costs of chartering a ship for commodities such as iron ore and coal – we wrote about this earlier in the year – has risen by over 60% according to this Financial Times article. This should come as no surprise as steel input costs have been rising rapidly. The cost of freight has also increased from $80,000 when MetalMiner first wrote about the index in late January to more than $160,000 today. So let’s tally it up. We have the current freight index (the Baltic Dry Index) rising rapidly since the end of January and a new futures index in which speculators, I mean investors can participate. Gee I wonder where the price of steel is headed. On a tangential note the article also mentions the increases are due to greater than expected stainless steel prices. That is interesting considering some of the indicators are headed in the exact opposite direction!

Again, the fundamentals tell us one story but the reality is suggesting another.

As for the third article, John Authers in an aptly titled piece called “The Observer Effect on Commodities,” suggests “one axiom that looks relevant to investment in commodities is Heisenberg’s uncertainty principle. It holds that the act of locating a particle in space makes its momentum uncertain, while an attempt to measure its momentum renders its location uncertain. It is perhaps the most famous example of the observer effect ” that by observing something, we interact with it and run the risk that we change it.” Authers then points to the ‘new money’ from fund managers chasing commodities, referencing an increase from $46b to $250b today. The article then gets into backwardation, contangos etc (which we’ll cover at some point in the future) etc but given the following two quotes from the article, “Increased demand for commodity futures has also had an effect on their supply. If prices are high now, producers are less keen to sell forward,” Mr Verleger explains. So they offer fewer futures, just as demand increases, creating an upward spiral.

It’s a very interesting article which if you have the time, I encourage you to read in full. The fear is that once the new investment dollars jump into the market, we’ll see additional metals price increases. MetalMiner will be launching a metals index of its own this summer. With the index, we hope to give metals buyers a little ammunition. If you are interested in learning more about this pricing index, drop us a line at lreisman at aptiumglobal dot com.

–Lisa Reisman

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