Almost everyone knows the age-old adage, Buy Low, Sell High, with the possible exception of a scoundrel trader for whom I used to work. He practiced a Buy low, but do whatever you need to sell strategy. Although buying low and selling high is a rather duh concept, I always get a kick out of hearing how XYZ company offloaded some old nickel or copper they purchased before the markets went crazy. So this article suggesting that now might be a good time to sell off gold jewelry purchased several years ago made me chuckle. Playing the price arbitrage game can work for buyers and sellers of all sizes.

I once met with the VP of global purchasing for a middle market manufacturing group who suggested that metals prices (we’re talking about the raw materials here) are similar throughout the world. But this couldn’t be any further from the truth. In fact, the arbitrage opportunities for buyers are probably more abundant as commodity volatility increases. Simply put, the more the prices for metals gyrate, the greater the opportunity to take advantage of arbitrage. Perhaps we can find an academic who would be willing to run some regression analysis for us to confirm that last statement. As an example, if the market is going down and a domestic supplier sets his price using a trailing three-month average, while a Chinese producer is using a spot price to set his price, a buyer can take advantage of an arbitrage opportunity (provided the product does not involve complicated tooling or high switching costs). Of course, there are many other variables, including the buyer’s required lead time, quality requirements, etc., but if the purchasing organization develops and creates multiple supply options for a particular category, there could be some savings or cost avoidance opportunities.

In the meantime, it is tempting to consider a little profit from those old gold necklaces!

–Lisa Reisman

Good Morning Vietnam: Investments Underway

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Global Trade

About a year ago, the media declared that Vietnam was the next big LCCS market after China. Intel helped found these rumours when establishing their largest overseas manufacturing operation with a one billion dollar investment near Ho Chi Minh City. But then things went rather quiet. One of the problems quickly realized by small- to medium-sized companies is that there is no component supply market infrastructure. Vietnam can offer some great Greenfield incentives, land, tax breaks, and low labour costs, but for the most part, you have to import your raw materials. This position is borne out by a quick review of projects started over the last year. They are all major corporations establishing manufacturing facilities where they will either feed off adjacent newly established producers or import the raw materials. As if there wasn’t enough investment in the steel mills in China, Thailand’s Tycoons and Taiwan’s E-United are jointly investing in phase one followed by a further $1.5 billion in phase two, with plans to build the world’s largest steel mill with a capacity of five million tons per annum. In addition, Posco, the Korean steel producer, has a $1.13 billion investment underway to build a 700,000 ton CR steel plant, possibly with the intention of feeding off of the slabs produced by Tycoon. Meanwhile, the European Commission is being inundated with claims for unfair dumping made by European producers against China. They haven’t seen anything yet. $1.83 billion

— Stuart Burns