Articles in Category: MetalMiner IndX

The metal news marketplace made its own headlines yesterday when Platts announced it was acquiring Steel Business Briefing, including its TSI unit. As an outsider to some extent, we can’t comment on the specifics including acquisition size, terms, etc., but from our perspective, the deal has significance for metal buying organizations as well as for the balance of the metal news/analysis/intelligence community. We also continue to believe that the primary way metals sourcing professionals typically obtain market pricing and market intelligence to facilitate their contract and supplier management efforts remains mired in “the old model, (which we discuss more below). And this acquisition will do little to help.

What Drives the Deal?

We can see several rationale behind Platts’ acquisition of Steel Business Briefing. The most important reason behind the deal has to relate to the growth of exchange- traded metals. With newer contracts for steel billet, hot rolled steel and soon to launch scrap futures, this deal should come as no surprise given Platts incumbent position in related areas. Platts already has a comprehensive price data service albeit without the depth of the ferrous metals offered by SBB. As part of the acquisition, Platts now picks up this data service.   Tick off synergy number one — perhaps the most important single driver of the deal.

According to Platts’ press release, “The acquisition of the SBB Group supports Platts strategy of expanding its presence in dynamic global commodity markets and immediately boosts our capabilities and the value we can provide to customers. Furthermore, according to the release, two-thirds of Platts’ revenue comes from outside the US, and adding additional capability around steel, an increasingly global market only enhances Platts existing offering. We would also view the deal as synergistic to some of the other markets Platts covers such as energy markets, oil, gas etc.

The battle for which price service will underpin the steel market remains unclear but Platts has better positioned itself via this acquisition. It also marks a comeback for a firm that was on the chopping block not too long ago.

The Battle You Don’t See

Behind the scenes, this deal puts the pressure on firms such as AMM and CRU. CRU’s prices currently underpin the CME HRC contract. CRU has also historically served as the index used by firms to peg steel contracts with producers and distributors. But we’d argue none of the current price data services provides the level, breadth or depth of the prices needed by industrial metal buying organizations. After all, the majority of firms do not hedge their metal spend.

Rather, industrial buyers peg contracts to a range of data points not currently published by the traditional metal trade publication/analyst industry. For the incumbents mentioned above, the real threat of course involves the ongoing challenge to the existing business models for data and price points and in the case of industrial buyers, price points not tied to exchanges per se — most industrial buyers never touch the exchanges — but rather, actionable data and price points tied to how industrial buying organizations actually buy metals.

At the end of the day, this deal will likely serve as a small footnote in how the metals trade and pricing publication marketplace changed just after the turn of the millennium. We believe far bigger changes are afoot, and here at MetalMiner, we’re among the chief instigators. In consulting we used a phrase to refer to little companies that threatened existing businesses   — “ankle biters. Some ankle biters actually succeed in taking down the big boys rather than just serving as a minor annoyance. Usually, the victim does not know it until it’s too late (think Home Depot market share in floor tile, as an example¦they had tiny single digit market share in the mid 90’s but no tile producer ignores them today).

We’ve adopted this phrase in the office here. “Ankle biters, as we like to call them (i.e., folks that tend to annoy the industry leaders, this publication included) that offer up alternative business models have begun to push the envelope. We believe they will continue to change the way industrial metal buying organizations “source their metal buying intelligence if you will.

To our surprise and delight, MetalMiner has become the largest online metals media trade publication in North America from its humble roots as a side-blogging effort less than four years ago (when we were simply trying to sell more consulting around metals cost reduction). In fact, some sources (Alexa) even suggest that our overall traffic rankings are now two, even three, times higher than incumbents such as AMM.

That was part one of our original business plan — build the traffic and influence. Part two is now about to take shape. In the coming year, you’ll see us begin to do for metals pricing and price points what we’ve done for how metals industry watchers and buying professionals inform their sourcing strategies by reading our coverage and insights.

Our plan is to target what sourcing professionals need — not what journalists and analysts who’ve never bought and sold metals in the industrial world somehow think they want.

–Lisa Reisman

MetalMiner is pleased to re-introduce guest columnist Jack Taylor. Jack is an independent metals analyst and consultant focusing on ferrous and base metals used in the energy industry. Prior to working as an independent metals consultant, he worked at PowerAdvocate as an Energy Business Analyst and at Independence Investments covering the automotive and transportation sectors. He can be reached at JTaylorMA(at)gmail.com

Over the past few months, readers of MetalMiner have sent emails asking, “what is the price of Grain-Oriented Electrical Steel (GOES) and Non-Grain Electrical Steel (NGOES)? and “where can I find current and historical pricing? Well, I have some good news and some more good news. MetalMiner will be publishing a monthly North American GOES index starting in late July. Historical data will be published as far back as 2004, and although we do have data as far back as 2000, much of the index is relatively flat compared to today’s numbers. The GOES index model is a proprietary mix of market intelligence, industry contacts, and government data that also form the basis of a forecasting model which I wrote about in the last two GOES articles (here and here). The North American GOES information will be available via MetalMiner IndX(SM).

In the near future, MetalMiner IndX(SM) will also release a North American NGOES index. NGOES, unlike GOES, has magnetic properties in all directions. NGOES is a less efficient electrical steel when compared to GOES; it is mainly used when companies need to lower costs. Furthermore, given that NGOES involves a less complicated manufacturing process than that of GOES, barriers to entry are few in the world market among already-operating steel mills possessing a significant capital expenditure budget for R&D. For some steel mills, NGOES represents an interesting opportunity as margins are significantly higher than high-volume produced steels and rising energy demand continues to place upward pressure for power generation products. NGOES is widely used in the production of generators, alternators, ballasts, distribution transformers, and motors used in appliances.

Both GOES and NGOES pricing vary significantly from customer to customer depending on source location (tariffs), product specifications, order volume, and general economic conditions. But all of this fails to answer the question, “What is the price of GOES?” As every GOES buyer’s need differs within a complex marketplace, let’s look at specification and then jump right into historical pricing to give an idea of a base-level market pricing. GOES used around the world generally breaks down into classes from M2 to M6, where M2 (0.18mm) represents the thinnest material and M6 (0.35mm) the thickest. From the power generation perspective, only M2 to M4 are of concern, given that the Department of Energy phased out the use of M5 and M6 used in the production of transformers domestically due to their lower efficiency value. In layman’s terms, think of it this way: wearing many thin layers of clothes vs. one big sweater should improve thermal efficiency many thin layers of GOES improves the efficiency of the electricity that travels through the transformer core.

Back in 2006, GOES prices began to climb higher as demand started to outpace supply as a result of China and India increasing their appetite for transformers in order to serve their power needs. Base price in 2000 for GOES was near $1,000 (short ton), but jumped to as much as $3,500 during 2006 according to government estimates. In contrast, the price of cold roll sheet steel in 2000 was around $350, rising to $600 by the end of 2006. Many in the energy sector became further alarmed when GOES prices climbed 37 percent at the end of September 2008 before losing traction and settling back to pre-recession numbers. Currently, the GOES index is tracking 10 percent less than 2008 highs yet is anticipated to rise moderately by year end.

–Jack Taylor

MetalMiner is pleased to welcome our newest commentator, Taras Berezowsky.

China steel prices appear to be on an upswing at third quarter’s end, but going into Q4, there is still much uncertainty about exactly where prices will be by the end of 2010.

Based on MetalMiner’s latest IndX, as of October 1, most metal types experienced a slight increase [see below]. For example, rebar was up nearly 8 percent from September 1.


Source: MetalMiner IndX(SM)

The slight increases do not necessarily indicate that prices in China, and by extension, much of Asia, are less affected than those in the U.S. As MetalMiner makes clear in its Q3 report, “the US market does have more price protection for raw materials than either Asian or European steel markets.

Though US steel price momentum remains uncertain, China may head toward a slightly different trajectory. News lately has focused on China’s crackdown on oversupply. By shutting down several mills entirely (though temporarily), and decreasing steel production overall by 70 percent, the move was seen as necessary to spur future demand in the Asian market. Now, according to sources, production looks to be restarting.

The Steel Index reports that spot iron ore prices reached $151/ton for 62% Fe fines. Prices have increased 11.5% over the past four weeks.

In a recent Reuters article, Manolo Serapio, Jr., writes that [Australian bank] ANZ said reports that China may be easing power curbs on steel mills “sets the scene for a boost in positive sentiment¦

Raw materials prices, especially iron ore, will no doubt be the primary drivers for increased steel prices. However, China, the biggest iron ore buyer in the world, will encounter market volatility here, as evidenced by the recent iron ore conference in Dalian.

Ian Christmas, the World Steel Association’s director general, quoted by Reuters at a news conference in Tokyo, sees uncertainty here as well. “There is no doubt a very short-term volatility in steel prices coming from raw material prices gives us and customers some issues, he said.

Global steel demand may just be the most important indicator. Demand is set to rise 13.1 percent to 1.27 billion tons this year, higher than an earlier forecast of 8.4 percent growth, according to the Oct. 4 Reuters report. Even Ukraine, the world’s eighth-largest steel producer, has seen sizable increases in crude steel output this year, with 33.5 million tons projected for 2010.

“We are in a transitional period: emerging economies like China, India, Latin American countries and Russia are bolstering their shares in steel output and consumption while demand in developed economies remains in the doldrums,” said Hajime Bada, president of the world’s No. 5 steelmaker, JFE Holdings Inc.

As long as demand in nations such as India stay strong, domestic consumption remains hearty the IMF projects 10.5 percent growth in 2011 and the real estate market is kept under control, China’s steel prices should stay steady.

–Taras Berezowsky

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