Articles in Category: Automotive

Recently, the MetalMiner team shared a laugh over BMW’s announcement that it would introduce a “subscription service” in certain markets for the use of their cars’ heated seats. While some of us remain avid BMW aficionados, whether or not customers will pay for the right to warm their seat remains unclear. This brings us cash flow.

BMW and other car makers are starting to recognize the overall attractiveness of the subscription model. That is, it’s a huge help when it comes to cash flow. Even Tesla has intimated it would add “software subscriptions” to its cars. But while company representatives didn’t specify when this might happen, recent events suggest sooner might be better than later.

Cash Flow

Just last week, the WSJ reported that Tesla’s free cash flow fell from $2.2b during Q1 to $621m in Q2. Shocking as this may be, it’s not due to some avant-garde Muskian business model. Like other car manufacturers, Tesla generates revenue when it delivers its vehicles to customers. Whatever is left over after the company pays its suppliers is profit.

When deliveries grow, cash flow increases. But when deliveries drop, so does the cash flow. Of course, every manufacturer recognizes revenue and generates cash flow a bit differently. Still, the Tesla example serves as a reminder that procurement also plays a strategic role in helping improve or maintain proper revenue streams.

A Tesla model. riiseimage/Adobe Stock

Procurement’s Cash Flow Levers

It’s important to remember that companies have multiple levers to mitigate slowing cash flow. The procurement department “owns” several of these levers and, therefore, must support the business accordingly. Some of these levers include:

  1. Adjusting Payment Terms – It’s perhaps the oldest trick in the book, but extending payment terms can help improve cash flow. Using various tools such as VenConnect can help suppliers with their accounts receivable while the buying organization extends terms.
  2. Negotiating Cost Downs as Commodity Prices Fall – MetalMiner has offered up two specific resources to help companies either reduce material costs now or reduce part/component spend.
  3. Avoiding Buying High Priced Inventory – Many companies fell into the trap of “panic buying” back in 2021 and early 2022. For metal spend, it is possible to never (or rarely) over buy. By correctly reading the short term and long term trends, buying organizations can identify when to buy for “just-in-case” requirements.
  4. Paying Close Attention to Changes in Demand – Working closely with sales to keep a constant grip on order books, demand shifts, and volumes gives the buying organization a clearer ‘picture of future demand’. In addition, sharing accurate demand forecasts with suppliers also helps ensure the company avoids “over-buying.” The latter, of course, can significantly impact cash flow.

Some of you may remember that Dell Computer founder Michael Dell revolutionized the concept of cash flow through mass customization. This allowed his company to take payment from customers before he built their computers. Of course, most manufacturers can’t operate using this model. That said, by paying close attention to several levers, procurement can play a valuable role in protecting the holy grail of cash flow.

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The Automotive MMI (Monthly Metals Index) experienced another decline from June to July. After a -6.53 drop last month, the 30-day price change jumped to -7.77%. As with the previous months, the automotive industrial metal marketplace has been plagued by problems. Curiously enough, it’s supply – not demand – that can’t make any headway towards normalization. Below, we’ll discuss some of the latest news affecting the global automotive marketplace.

Industrial Metal

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Dude, Where’s Our Cars? U.S. Automotive Industrial Metal Tighter Than Ever

Recently, Cox Automotive revised their sales predictions for the rest of 2022. Though all the figures are not yet in, they set their June sales forecast at 13.8 million. This is up from the previous month’s 12.7 million units but far below what we saw in 2021. As if that weren’t bad enough, the company’s current yearly forecast for new vehicle sales remains lower than we saw in 2020.

How can a “recovering” industry fail to meet mid-pandemic numbers? Cox was quick to cite inventory as the major driver of the buying slowdown, but analysts certainly aren’t ignoring the worsening global economy. According to Cox’s Senior Economist, Charlie Chesbrough, they have demand, particularly for electric vehicles. However, the roadblocks between raw material suppliers, manufacturers, and consumers just keep multiplying.

Industrial Metal

Last month, Cox also sounded the alarm about monthly car payments, which had hit a shocking average of $712. Of course, even buyers seeking used vehicles are getting pinched by price increases. Many experts say that it’s frustrating to see so much demand and no supply. In fact, some think it’s only a matter of time before most buyers simply throw in the towel on their new car prospects.

Will this give the supply side the chance to catch up or just toss another wrench into the industry’s sputtering machine?

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Manufacturers Think the Chip Shortage May Stretch into 2023 (or 2024)

One of the main factors hamstringing global auto supply is the ongoing semiconductor shortage. Unfortunately, hopes of seeing any relief in this area were dashed yet again at the World Economic Forum this Spring. There, Intel CEO Pat Gelsinger stated that supply problems would most likely continue into at least 2023. He subsequently admitted that 2024 would be more likely.

As with most other commodities, the shortage of microchips is a multifaceted problem. During the pandemic, home electronic sales went through the roof. However, factories were also forced to slow production or shut down entirely. As the Law of Supply and Demand reared its familiar head, it wasn’t long before shortages, and price increases became the norm.

Then came the invasion of Ukraine. This drastically affected the supply of neon gas, which is essential to the conductor market. Russia, on the other hand, supplies between 25% and 30% of palladium, another semiconductor necessity. As sanctions on the country began to roll out, the palladium did the opposite.

Russia VS Ukraine

GM Removing Non-Essential Functions

Of course, Gelsinger’s announcement was only surprising to industry outsiders. Auto manufacturers have been scrambling for months, trying to find a way to build cars around the shortage. GM removed heated seats from many of the vehicles, telling customers they’d reinstall the feature as soon as chips became available. Other companies started limiting secondary non-essential functions altogether.

But the news isn’t all gloom and doom. McKinsey & Company recently published an article detailing how the Automotive Industry could circumvent the problem. Though they admit that there are no “short-term” solutions, the company sees the post-pandemic shortage as a chance to shore up supply lines for the future. If chip suppliers and car companies use this as a learning opportunity, it could be the last time we see scarcity on this scale.

If you want to maximize your savings on metal commodities, you need to make sure you’re following these five best practices.

Industrial Metal and Cars: The Future is Electric

Despite all the issues plaguing the Automotive marketplace and industrial metal, it’s hard to ignore the fact that we’re in the middle of a tech revolution. A new CBS poll recently found that 59% of Americans are considering buying an electric vehicle. Moreover, sales of hybrids and EVs doubled last year, setting a new record of 6.6 million units.

Electric Vehicle

An electric car charging in California

Of course, this shift was intended to created interest in new technology or a desire to live “more green.” Instead, it’s largely the result of anger and outrage over skyrocketing gas prices. In that way, it’s less like the move from horses to cars at the beginning of last century. Unless the impetus back then was a major surge in the cost of oats.

But it’s important to keep things in perspective. These types of shifts are normally good economic news, presenting opportunities for companies of all kinds to produce new, exciting products and services to support them. For instance, Sony and Honda announced a joint BEV venture. French car giant Renault wants to re-imagine their Alpine sports car with fully electric capabilities.

What’s the Verdict?

The takeaway: more and more people want off gasoline. And whether they go into the future happily or begrudgingly, they are going nonetheless. This means a lot for metals commodities, especially battery-related minerals like lithium, cobalt, and nickel. It means a lot for battery companies, who are pressured by the market to produce newer, better, and more effective products.

Lastly, it means a lot for the balance of the global economy and industrial metal. In the very near future, having oil reserves might not be the economic and international relations “blank check” it used to be. Will it be great? Will it be a disaster? It’s impossible to tell. But one thing’s for sure: it will be different. For those who aren’t enjoying 2022 very much, “different” might be good enough.

Automotive MMI: Actual Metal Prices & Trends

  • Korean aluminum experienced no price change this month per kilogram, compared to June’s slight price drop.
  • Chinese lead prices dropped further this month, falling around 1.86% per metric ton.
  • US shredded scrap steel took another hit this month as well. Priced dropped an additional 3.64% per short ton.
  • Palladium bars, like many precious metals, followed a downward trend in July. Prices fell 4.51% per ounce.
  • Platinum bars followed suit with palladium taking a price hit. The price per ounce fell 7.46% per ounce.
  • LME copper dropped a staggering 13.49% per metric ton.
  • US HDG steel took a most drastic hit, plummeting 14.55% per short ton.

The Automotive MMI (Monthly Metals Index) experienced a slight decline from May into June. The 30-day price change was roughly -9.55, a -6.52% drop. As with last month, multiple crises impacted the marketplace’s overall health. Among them are an ongoing microchip shortage and COVID-19 lockdowns. Below, we’ll discuss if and when we can expect normalization.

Automotive

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Inflation Causing Precious Metals to Become a Bit Less “Precious”

Gold, silver, platinum and palladium all experienced drops this month as U.S. Treasury yields soared by 3.39%. The news comes amid chronic inflation that seems to show no sign of dissipating. Indeed, as outlined in a Financial Times article, U.S. inflation clocked in at around 8.6% in May. This represents a 40-year high that could spell big trouble for the post-COVID economy.

Much of the market panic stemmed from a Wall Street Journal story predicting a 0.75 percentage point interest rate hike. In preparation for a surge in the dollar, precious metals declined across the board on June 13. In a report published in Reuters, Phillip Streible, the Chief Marketing Strategist for Blue Line Futures, said “There’s a massive correction going on, and when volatility gets that high, you can’t find safety or comfort anywhere.”

While gold and silver are largely investment commodities, palladium and platinum are key components in the automotive world. They are mostly used in catalytic converters for car exhausts, especially in newer, greener vehicles.

Last month, MetalMiner highlighted how newly imposed U.K. tariffs would affect Russia’s platinum and palladium markets. While the former is still climbing, palladium has long since erased those gains.

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The Automotive MMI revealed a 13% drop in palladium prices.

J.D Power Outlines Challenges in the Automotive Rebound

In an article from late May, J.D. Power reported that they expect new vehicle sales to drop significantly from 2021. Specifically, they projected May retail sales to reach just over 1 million units. When adjusted for the difference in selling days, that’s a 20.9% decrease from last May.

However, the company was quick to qualify its numbers, citing that demand far exceeds the available supply. Indeed, for the 12th month in a row, end-of-month retail inventories will be below one million vehicles. J.D. Power also highlighted record-breaking new-vehicle prices. The average transaction price is estimated at $44,832. This is helping to buttress the falling demand by boosting profits, even in the face of rising interest rates.

According to J.D.’s President of Data and Analytics, Thomas King, “for the balance of 2022, increased vehicle availability, higher interest rates and some cooling of used-vehicle values likely will lead to slower transaction price growth—but are unlikely to lead to declines.”

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China’s Automotive Industry Sees a Light at the End of the Tunnel

Back in April, China’s auto association projected a 48% year-over-year drop in car sales. Of course, this was during the height of the COVID-19 lockdowns. Since then, Beijing and Shanghai have loosened their restrictions while simultaneously providing cash incentives to stimulate buying.

According to a recent WSJ article, the efforts are already producing results. For example, passenger car sales rose 30% in May, from 1.04 million vehicles to 1.35 million. Though this number is down about 17% from last year, it clearly shows that things are moving in the right direction.

And while COVID continues to cast a shadow over the country’s economic recovery, the Chinese government’s efforts have largely proved successful. For instance, Beijing reduced the vehicle purchase tax to the tune of nearly $9 billion.

Meanwhile, local governments added their own incentives to the mix in an effort to produce the best possible numbers. It’s too early to tell what the rest of 2022 has in store. However, China is making a concerted effort to show the world they’re back on track.

Semiconductor Shortage Still Affecting Automotive MMI

The semiconductor shortage might be one of the biggest contributing factors to the automotive industry’s ongoing woes. In fact, industry experts at TheDrive.com estimate that lack of microchips has already cut global supply by more than 2 million cars. This estimate received a shot in the arm last month when Toyota announced it would cut its global production plan by around 100,000 vehicles.

According to an article from Reuters, this drops the overall production plan from nearly one million to only 850,000 vehicles. The automaker cited COVID-19 as a compounding factor in the decision, but stated that the chip shortage is the primary holdup. As of the announcement, the company’s promise to deliver 9.7 million vehicles by March 2023 remains intact.

If you’re responsible for generating metal cost savings, you need to make sure you’re following these five best practices.

Automotive MMI: Actual Metal Prices & Trends

  • U.S. platinum bars rose 2.88% to $965. They also peaked at $994 per ounce, indicating that there’s still plenty of room for price movement.
  • Palladium bars fell a stunning 13.49% month over month and currently sit around $1,870 per ounce.
  • Both US Scap and HDG steel experienced drops this month. The former declined 5.91%, while the latter fell 8.81% to $1,736 per short ton.
  • Korean aluminum also fell around 5.59%, with first-day prices clocking in at $4.28 a kilogram.
  • Chinese lead dropped a full 4.44% to $2,255 per metric ton and has since declined even further.
  • On the LME, copper fell just 3.18%, starting the new month at $9.510 per metric ton.

 

 

The term battery metals typically refers to lithium, nickel, and cobalt. The name stems from the fact that the three metals are frequently used in the production of all types of modern batteries. Since 2021, these metals have enjoyed a rather lengthy bull run. This has proved profitable for investors and provided some much-needed predictability for traders.

However, if you ask the experts at Goldman Sachs, the battery metals party is “officially over.” But is this really true? If so, what does it mean for the rest of 2022?

Are Battery Metals Really Done For?

Cobalt saw its last major surge back in March of 2018, when it reached an all-time high of $94,000 a ton. Though they seemed on pace to recapture that same magic, Cobalt prices are now declining from their April heights of $79k. Lithium, meanwhile, has just started retreating after hitting nearly $50k/ton in March. Even so, they stand fairly tall at around $46,000. Nickel prices are hardly determined by technology alone, but they have still spent the last week or so searching for a solid bottom.

But here’s the thing about Goldman Sachs’ recent proclamation: it’s incredibly early, and it doesn’t really consider the facts. If you read any of the articles on the matter, you’ll note that the organization has largely hinged their prediction on supply issues. In their words, the lack of a healthy supply chain will cause “a multi-year softening path for fundamentals,” triggering a sustained surplus and, therefore, a drop in prices. And while they make allotments for demand, it’s entirely possible they aren’t making enough.

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electric car battery

Electric car lithium battery pack. (Nischaporn/ Adobe Stock)

The Real Supply Issue at Work is Oil

Gas prices are predicted to reach $6.00 a gallon across the US by early summer, one of the busiest traveling times of the year. And though the numbers are still out for 2022, EV sales grew by 85% from 2020 to 2021. You might recognize that this was smack dab in the middle of the pandemic.

Now, with oil surging due to the war in Ukraine and other factors, you can expect more and more Americans (and Europeans) to throw in the towel and go electric. If this happens, GS’s prediction for EV demand is going to fall way short of reality. Of course, the more EVs and hybrids you sell, the more batteries you’re going to need.

While far from a forgone conclusion, this is still a perfectly reasonable scenario. If Russia’s war continues and oil supplies don’t get a significant boost, we might only be looking at a “brief pause” in the battery metals gold rush.

One thing’s for sure: other companies are betting against Goldman Sach’s claims. Just this past Friday. Chevy reduced the price of the 2023 model Bolt to just $26,595, making it the cheapest electric vehicle in history.

As EVs become more affordable (and more tempting), you’re going to see some major shifts across multiple commodities. What matters now is ensuring you’re on the right side of those moves.

The metal marketplace moves fast. You can keep yourself properly informed with MetalMiner’s monthly MMI Report. Sign up here to begin receiving it completely FREE of charge. If you want a serious competitive edge in the metals industry, try a demo/tour of our revolutionary insights platform here.

The Automotive MMI (Monthly Metals Index) held flat from April to May. This was largely the result of a number of factors working in concert. Below, we’ll dig deeper into the automotive marketplace to see if we can determine what to expect for the rest of 2022.

Automotive MMI: China Auto Sales, Production Plunge In April

Source: China Association of Automobile Manufacturers

The data resulting from China’s COVID-zero policies continues to look grim. According to the China Association of Automobile Manufacturers, auto sales and production plunged in April. Specifically, the latter index dropped 46.2% month over month, while overall auto sales fell 47.1%

Shockingly, Tesla saw sales throughout mainland China plummet 98% from March. Meanwhile, production for the automaker also took a substantial hit, with Chinese output falling 81% from 55,462 automobiles to 10,757. As lockdowns and other strict policies remain ongoing, experts predict that much of the impact witnessed in April will bleed into May.

There is some good news on the horizon, however. For instance, COVID-19 case counts in Shanghai continue to fall. According to data released on May 11, daily infections managed to drop beneath 1,500 cases, an 18-day low. Meanwhile, around 612,500 people have tested positive for the virus since March 1.

The stark drop in daily infections signals the possibility of an end to lockdowns within the city. However, officials over in Beijing continue to ramp up pressure on the populace. Aside from closing businesses and schools, all residents are now required to work from home.

Are you under pressure to generate metal cost savings? Make sure you are following these five best practices.

Semiconductor Shortage May Not End Until 2024

According to Intel CEO, Pat Gelsinger, the ongoing semiconductor chip shortage will likely persist until at least 2024. This is a tragic prediction considering how much the current shortage is impacting equipment manufacturing.

Gelsinger previously expected the shortage to resolve by 2023. However, in an interview with CNBC’s TechCheck, she revised her estimate, stating, “that’s part of the reason we believe the overall semiconductor shortage will now drift into 2024 from our earlier estimates in 2023. More shortages now hit equipment, and some of those factory ramps will be more challenged.”

So far, the semiconductor shortage has severely impacted global auto production, especially given the slew of other factors at work. In response, AutoForecast Solutions once again lowered its production estimates for 2022.

The company now expects production in North America and the Asia-Pacific region to fall by 2% to 14.82 million and 46.68 million units, respectively. In Europe, Western and Eastern  production estimates now stand at 11.16 million and 6.26 million.

UK Imposes 35% Duty on Russian Palladium, Platinum

Both palladium and platinum prices saw a modest lift following the UK government’s announcement of a new round of sanctions on Russia and Belarus. As part of the package, the UK will raise tariffs on products including platinum and palladium by 35%.

Russia produces around 40% of global mined palladium and almost 16% of global platinum. This makes the country the world’s largest and second-largest producer with respect to both precious metals. As such, the ongoing war in Ukraine and its effects stand as a leading driver for most of this year’s price fluctuations.

Indeed, both metals previously jumped in early April following a decision by the London Platinum and Palladium Market to suspend two major Russian-government-owned refiners.

MetalMiner’s free weekly newsletter provides up-to-date metal price intelligence on the impact of the war in Ukraine on metal prices and the Automotive MMI.

Actual metals prices and trends

  • The US scrap steel price rose 1% month over month to $606 per short ton as of May 1. Meanwhile, the US HDG price picked up by 2.36% to $1,906 per short ton.
  • US palladium bars rose 2.32% to $2,254 per ounce month over month. Platinum fell 5.25% to $938 per ounce.
  • The Korean 5052 coil premium over 1050 declined 4.83% to $4.53 per kilogram.

 

 

The Automotive Monthly Metals Index (MMI) increased by 8.1%, as palladium prices surged in the early part of the month and renewed COVID-related restrictions in China impacted automotive operations.

COVID restrictions in China curb production

While many parts of the world have started to roll back COVID-related restrictions, a resurgence of cases in parts of China has led Beijing to ramp up mitigation efforts.

In keeping with its zero-COVID policy aims, the cities of Changchun and Shenzhen have shut down in response to a surge in COVID cases.

MetalMiner covered the shutdowns in the weekly newsletter this week.

“China announced additional COVID-related lockdowns, in particular the closure of half of Shanghai now (with the other half to close April 1),” MetalMiner CEO Lisa Reisman and Don Hauser, vice president, business solutions, explained. “In addition, the country has shut down manufacturing in Shenzhen and the city of Changchun. Tesla announced it would shut down for four days in Shanghai. Lockdowns slow economic growth, as exports will slow (despite ports remaining open).

“A slow-growing China with lockdowns has forced the oil price lower. When oil prices fall, so do metal prices — that, in fact, is what we see now.”

Make sure to keep up to date with metals commentary and analysis from the MetalMiner team in the weekly newsletter.

The shutdowns impacted a number of automakers operating there, including Toyota and Volkswagen.

Palladium prices surge in early March

As we continue to track the impacts of the Russia-Ukraine war, one metal we’ve focused on is palladium.

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As we continue to analyze current market factors and their impacts on nickel prices, copper prices and other key metal prices for automotive production, today we’ll focus on an announced addition to the domestic automotive manufacturing scene.

metal prices

Petr Ciz/Adobe Stock

A new automotive player will be coming to the U.S. soon, as Vietnamese automaker VinFast this week announced plans to build a new electric vehicle manufacturing center in North Carolina.

For metal buyers in the automotive sector, keep an eye out for the April 2022 Automotive MMI report next week. The full March 2022 MMI report — featuring 10 metal and industry subindexes, including automotive — is available for download

EV manufacturing center coming to North Carolina

Founded in 2017 and headquartered in Vietnam, VinFast said it plans to build an 800-hectare manufacturing center in North Carolina. The firm expects construction to begin this year after it acquires a construction permit.

Furthermore, the automaker expects to begin production in 2024.

According to VinFast, the center will feature three areas for:

  • Production and assembly of electric cars and buses
  • Electric vehicle battery production
  • “Ancillary industries” for suppliers

Capacity during the first phase of construction is expected to be 150,000 vehicles per year, the automaker said.

“VinFast has established global operations in the US, Canada, Germany, France and the Netherlands,” the firm said. “The company currently provides an ecosystem of EV products in its home country of Vietnam, including e-scooters, electric buses and electric cars, charging station system and green energy solutions.”

Made in America

The U.S. Department of Commerce on Thursday hailed the announcement of the “multi-billion dollar investment.”

The DOC claimed the center will create more than 7,000 jobs and “fuel American efforts to combat the climate crisis.”

“EVs are the future of auto manufacturing; the only question is whether we want EVs and their components made here in America or somewhere else,” Commerce Secretary Gina Raimondo said in a release.

According to a 2021 report by the International Council on Clean Transportation, the U.S. is the world’s third-largest EV manufacturer. China and Europe as a bloc are ahead of the U.S. in EV production.

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The Automotive Monthly Metals Index (MMI) fell by 0.7% for this month’s value, as palladium prices have surged while steel prices have retreated.

Last year, MetalMiner added a suite of precious metals prices to the MetalMiner Insights platform. 

Russia-Ukraine war, the auto sector and palladium prices

The Russian invasion of Ukraine has yielded commodity price volatility spanning across sectors.

palladium bars

Piotr Pawinski/Adobe Stock

Russia is a major producer of platinum and palladium. Palladium primarily goes toward catalytic converters in car exhausts.

As Western countries hit Russia with sanctions, some companies will have to look for alternative sources. (As always, buying organizations should make sure they are up to date on the best sourcing strategies.)

Palladium prices have surged in recent weeks, rising by 13% month over month as of Friday.

“Russia and Ukraine lead global production of metals such as aluminum, nickel, copper, and iron ore,” according to a special report by Dun & Bradstreet titled “Russia-Ukraine Crisis: Implications for the global economy and businesses. “Nonavailability of Russian as well as Ukrainian supplies could cause high prices along with volatility. For rare metals like neon, palladium, and platinum, Russia has been the primary supplier to Europe. Ukraine is also a vital source of rare metals (iron ore, manganese, titanium, gallium, kaolin, zirconium, and germanium) to Europe and the rest of the world.”

Platinum, nickel prices rise

On the other hand, platinum typically goes into diesel catalytic converters. Russia is also a major producer of platinum.

As the Dun & Bradstreet notes, South Africa is a potential alternative source of platinum for automotive manufacturers (or other platinum end users).

Meanwhile, nickel prices have also surged.

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The Global Precious Monthly Metals Index (MMI) rose by 6.8% for this month’s reading. This represents the second month in a row of precious metals inswz increases. Last month the index increased by 4.1%.

Palladium, and to a lesser extent, platinum drove the index higher. Most of the other precious metals held flat or fell.

The palladium price rise this month may have more to do with the anticipated Russian invasion of Ukraine. Although MetalMiner has covered this geopolitical event through the lens of other metals, particularly steel and aluminum, Russia supplies 35% of the world’s palladium. Palladium, as opposed to platinum, has made its way into more newer cars. It has become the “precious metal of choice” for catalytic converters.

The increase in January’s Global Precious Metal MMI comes down to strong palladium demand from the automotive industry. Constrained supply also plays a role.

The Global Precious Metals MMI along with all inflation/deflation indexes from MetalMiner are available as a free monthly report.

Automakers will dictate where palladium and platinum go from here

Although some automotive shortages have eased, automakers give a cloudy view on production forecasts beyond the current quarter. Toyota and Honda, in particular appear cautious while Ford and GM appear more confident about production numbers.

The truck blockade of the Windsor Bridge, a key trade route between Canada and the US, dissipated Saturday only to continue as of press time. Nonetheless the blockade did impact inbound raw material supply to the automotive industry.

Gold – the real story

Now that the US military believes Putin has confirmed his intentions to invade Ukraine, gold looks particularly poised to rise based on technical analysis.  Silver too could follow in gold’s footsteps, should war ensue.

 Source: MetalMiner analysis of Trading View data

 Fed tapering

With tapering already in effect and more to come, gold watchers have likely anticipated falling prices. Moreover, rising interest rates have also historically put a damper on gold prices. But today’s markets look a bit different. Many metal prices have moved without explanation.

MetalMiner uses artificial intelligence and technical analysis to identify buying strategies for a full range of precious metals.

Key indicators

MetalMiner’s own technical analysis/forecasting team has their eyes on the Russian/Ukranian situation, the VIX and key economic indicators such as housing starts, which have started to slow. These indicators and how traders respond to these will dictate where gold goes next.

Actual prices and trends

China palladium increased the most jumping early 23% to $83.33/gram from $67.83/gram. US palladium increased similarly, up 20.22% from $1845/ounce to $2218/ounce.

Silver fell .15% from $23.30/ounce to $23.26/ounce. Gold, meanwhile moved similarly at .15% from $1829.80/ounce to $1832.60/ounce.

 

The Automotive Monthly Metals Index (MMI) dropped by 2.5% for this month’s reading, following last month’s 3.4% decline.

However, from a historical perspective, the Automotive MMI sits just off its all-time high. For nearly all of 2021, the entire automotive industry has felt pain. That pain has come in the form of high prices, lack of material availability, and logistics delays. 

Steel mills, in particular, took a very aggressive negotiation approach with automakers during Q4 2021. In fact, MetalMiner stated that the mills’ aggressive approach would likely lead to demand destruction. Automakers then and now always have options. MetalMiner outlined a few of those options previously. Options include: moving tons to other suppliers, PPAP (qualifying new suppliers for new parts) new suppliers, among others. 

MetalMiner did not consider changes to boiler plate purchase order terms and conditions. But Stellantis opted for that strategy.

FWIW, this quick-read strategy brief outlines the “5 Best Metal Sourcing Strategies

Steel mills took the first shot 

At the time, steel mills wanted to force automakers to adjust their 2022 contract pricing to better reflect the then-current spot market (+$1500/st for HRC). Mills, because of high demand and supply constraints, dictated all sorts of terms and conditions. These included: minimum tonnages, premium pricing for items the mills did not want to produce, adders and extras etc.  Negotiations took a “take no prisoners” attitude. 

Steel industry consolidation, most notably Cliffs buying up AK Steel as well as much of Arcelor’s automotive business, further tilted the negotiation balance toward suppliers.

Then the market started to shift

Several automakers in discussions with MetalMiner revealed frustration over the heavy handed negotiation approach taken by the steel mills. A few weeks later, prices had started to slip as new capacity came online and imports started to arrive in greater volumes. So far, steel prices have not reached a price floor.

Here is how metal buying organizations know precisely when markets shift out of trend.

Stellantis rebels with a big hammer

So it should come as no surprise that Stellantis recently released an extensive update to its standardized terms and conditions. Perhaps they did this in response to what it saw from suppliers. Many auto producers have reported significantly higher raw material price increases throughout 2021. In a recent Ford interview, the company indicated that it spent an additional $2-3b last year and will see another $1-1.5b in additional costs this year. Ford went on to say that the supply chain will loosen up during the second half of 2022 due to new chip capacity coming online and Covid impacted workers returning to work. 

As a result, MetalMiner speculates that Stellantis changed many aspects of its terms and conditions to counter what the company perceived as strong arm tactics across its supply base. Warner Norcross and Judd, a law firm, published a summary of those contractual changes

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