CommentaryMarket Analysis

If your January looked like our January, then you have probably read a few price forecasts, metal outlooks or more than one economic analysis.   You may have even attended the recent steel market outlook we gave last week. We would suggest one more outlook that metal buying organizations might find relevant this one supplied by material demand aggregator Supply Dynamics. The Supply Dynamics 2011 Metals Outlook makes for an interesting read because the company aggregates the raw material volume of 14 of the largest OEMs, according to their website, which includes 2000 parts suppliers spanning a range of industries from medical, nuclear, heavy industry, aviation, petrochemical and industrial gas turbines.

Not only does Supply Dynamics maintain broad visibility across industries, it also has broad visibility across metals, particularly in stainless steels, aluminum, nickel but also steel and copper.

Based on that demand visibility, Supply Dynamics offers up several noteworthy trends and in particular, on the demand side of the equation they have pointed to growth in the following areas:

  1. Both auto and aerospace demand and sales have improved. The company anticipates aerospace demand to increase once the 787 moves into full commercial production
  2. The US nuclear and wind industries will likely stay flat largely due to the failure of cap and trade legislation, but oil prices, if they exceed $90/barrel could provide the impetus for some of these alternative energy industries to come back to life
  3. Housing markets up but commercial construction flat
  4. Global energy industries up

On the supply side of the equation, Supply Dynamics points to a few disconcerting factors that have gone largely unreported. The first factor involves the acquisition of key alloying materials used to make steel by both governments and companies alike. Besides coking coal, severely impacted by the recent Australian floods, Supply Dynamics suggests metals such as molybdenum also face supply constraints. In addition, the company sees price increases for stainless long products due to a fire at Roldan’s stainless plant in Spain.

Readers can learn more about Supply Dynamics’ aggregation model here.

Their specific price forecasts can be found here.

–Lisa Reisman

Disclaimer: Supply Dynamics is a sponsor of MetalMiner

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

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(Continued from Part One.)

The carry trade has been a major component of Brazil’s capital flows over the last few years, more than financing the growing current account deficit which reached US$ 47.5 billion in 2010. FDI nearly doubled from US$25.9 billion in 2009 to US$ 48.5 billion in 2010 as investors jumped on the bandwagon, borrowed cheap dollars and invested in high yielding Brazilian assets or even deposits. One of the first steps the new head of Brazil’s central bank, Alexandre Tombini, took on upon entering office was to raise the SELIC, the Banco Central do Brasil’s overnight lending rate, another half point to 11.25 percent, according to a Telegraph article. Borrowing dollars at 1-2 percent and getting a return at 11 percent plus an appreciating currency has been a one-way bet, as the flow of money into the country has exacerbated the problem. The paper observes that inflows have turned the Real into Latin America’s “Swiss franc,” driving it up 39 percent against the dollar and almost as much against China’s semi-fixed Yuan over the past two years.

While the government is most vocal about the depreciation of the US dollar, deliberately driven down, they feel, by quantitative easing, the Brazilian government has not been slow to action against their largest trading partner — China — adopting 28 anti-dumping measures covering steel, tires, synthetic fibers, chemicals, shoes and toys. The most recent, toys, saw import duties rise from 20 to 35 percent this month. But the government cannot wholly blame foreign governments for their problems, particularly the current account deficit. Fiscal policy is ultra loose, the government pump primed the economy last year to win re-election raising state spending by 11 percent, inflation jumped to 5.9 percent in December as the country was awash with money and the domestic economy roared away. Like China, the state development bank lavished subsidized credit on companies to keep the economy humming during the global credit crisis. Unlike China, Brazil has full convertibility, still largely unrestricted capital flows and a floating exchange rate — the results are plain to see. Capital flows may not remain unrestricted for long, however. Brazil is so concerned by developments that they are looking at a range of measures to protect domestic manufacturers and restrict flows of hot money into the country. Expect further import duties to be applied this year and probably cuts in government expenditure in an attempt to take some heat out of the economy. Whether that will be enough to bring down the Real remains to be seen; our expectation is not, but if Brazil is not to suffer a repeat of previous booms and busts, action on a variety of fronts will be required.

–Stuart Burns

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

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What wouldn’t OECD markets like Europe or the US do to have Brazil’s economy? The South American powerhouse turned in yet another trade surplus in 2010 at US$ 20.3 billion and exports rose by 31.4 percent. Employment is high, as the WSJ reported just this week. Unemployment is down to a record low of   5.3 percent in December from 5.7 percent in November, 6.7 percent for 2010 as a whole and 8.1 percent in 2009.

So what could be wrong? Why these complaints about currency wars and threats of capital controls? Well, as good as the current position is, when taken in isolation and looked at over the medium term Brazil is sliding down a slippery slope of deteriorating competitiveness and over-reliance on a narrow sector of commodity exports. As a recent Economist Intelligence Unit report explains the trade surplus, which peaked at US$46.5 billion in 2006, has been shrinking fast. 2010’s US$20.3 billion is less than half the level of 2006 and down by around a fifth from the level of 2009. Although exports continued to rise, by 31.4 percent in nominal US dollar terms, and exceeded US$200 billion for the first time, imports continued to rise at a much faster rate, by 41.6 percent.

Source: Economist Intelligence Unit

Not only are imports rising faster than exports, but the mix is changing. Once a major exporter of finished goods, Brazil is increasingly reliant on commodity products, much of which are going to China. Agriculture and livestock contributed US$63 billion to the country’s trade surplus, the report said, but industry and services registered a deficit of US$42.7 billion, illustrating that Brazil’s trade surplus has become increasingly dependent on commodities.

While Brazil’s exports have become progressively more reliant on the commodities trade, they have also become progressively more reliant on one country, China. Like Australia, Brazil’s fortunes are tied up in the ongoing story of China’s industrialization as the country imports increasing quantities of Brazilian iron ore and soy beans. For the first time in 30 years, Brazil exported more primary products than manufactured goods last year. Commodities accounted for 44.6 percent of overall exports up 4 percent over 2009, while manufactured exports fell sharply from 44 percent in 2009 to 39.4 percent in 2010.

Domestically, the government is coming under intense pressure to do something about the situation. O Globo, a domestic news site, is reported in Bloomberg as predicting Brazil’s trade surplus could shrink to just US$ 1 billion in 2011 as the currency continues to strengthen and choke off exports:

Graph courtesy of ADVFN.com

(Continued in Part Two.)

–Stuart Burns

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

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If one answered that question by reading the recent press on gold and silver, one might conclude with a resounding “no,” given the “outflow of dollars in various gold and silver funds. But drawing that conclusion, along with a few others we have seen of late, might not tell the complete story. Let’s consider the “bifurcation of the silver market as expressed in this recent article comparing the record purchases of silver coins versus the significant outflows from ETF funds.

By way of background, SLV, backed by JP Morgan, warehouses silver just like SIVR, an ETF Securities Fund (which uses HSBC). The recent dollar outflows of SLV may only have occurred because the fund started earlier than SIVR and investors might have sought an opportunity to take some profits off the table (e.g. the run-up in SLV, because it is an older fund, might explain some of the dollar outflows). SIVR has a cheaper management fee of 30bps (vs 50bps for SLV) and owns physical silver bars audited by an external metal assayer two times a year. We chatted with Will Rhind, head of US operations for ETF Securities, to gain a better understanding of some of the issues involved in the silver market.

MetalMiner:   Can you explain why investor dollars have been pouring into silver coins, but leaving ETFs?

Will Rhind: The trend of investors buying silver coins, and gold for that matter, has been strong over the last few years. Buying coins and buying ETFs are two different things. Coins are tangible and have numismatic value, i.e. people may want a coin because it is deemed more collectible or desirable than another. Silver ETFs like SIVR are investment tools and are designed to track the price of silver with minimum premiums and discounts to the spot price. Coins on the other hand can attract premiums on purchase and discounts on sale. As such, coins are not so much investment vehicles but more a medium for people looking to collect or store. People looking to tactically trade the silver market are probably more likely to execute this using an ETF than a coin. Silver coins are cheaper than gold coins.

MM: What does this dichotomy suggest in terms of silver prices going forward?

WR: I think this is positive for silver prices. It shows that the silver market is seeing demand both on the investment side through ETFs and futures and on the physical side through coins and bars. Until interest rates rise and get to a certain level and take some of the attractiveness off precious metals, prices look bullish. When real interest rates remain negative, one is effectively incentivized to go ahead and buy real assets such as precious metals.

MM: What do you see as the short, mid-term and long-term trends going forward?

WR: The macro environment for metals is still positive and nothing much has changed from last year – negative real interest rates in the US and many European countries, large deficit and debt levels in many western economies and the recent quantitative easing programs have relaxed monetary policy and may ultimately lead to inflation. The European sovereign debt concerns of 2010 still linger and may surprise us again in 2011. Global economic growth does seem to be picking up and that may have more of a positive effect on the pro-cyclical metals such as silver, platinum, palladium and copper to name a few.

MM: Can you comment on whether supply shortages exist for silver, as some have reported?

WR: We see no noticeable shortage of silver. Supply fluctuates yearly; however, the availability of silver within the physical market still exists. If people believe the mine supply of silver will fall this year, then some people can extrapolate that into something more extreme. But from our vantage point, we don’t see any signs of a visible shortage.

Those interested in the silver market can attend a free conference Phoenix Investment Conference & Silver Summit on February 18-19, 2011.

Details contained in the referenced link.

–Lisa Reisman

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

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Will it or won’t it tip into deficit, seems to be the current question among aluminum pundits when looking at the aluminum supply/demand balance this year. A recent Reuters article weighed some of the opinions quoting informative sources such as analysts CRU and the investment bank Morgan Stanley. “Demand picked up strongly in 2010 and we expect that to continue into 2011, although at lower rates of growth,” the paper quotes Olivier Masson of CRU, adding “However, supply remains strong so we still expect the market to be in surplus this year.” While they quote a recent Morgan Stanley report which stated it was encouraged by the “rapid rate of decline in the global supply surplus over the past year, resulting in the first decline in the stock- to-consumption ratio since 2007,” saying the ratio fell to 8.43 weeks of demand last year and predicted a further fall to 7.66 weeks this year. “We expect this to continue until the end of 2013, with the primary market supporting its first deficit in six years in 2012,” Reuters reported the bank as saying.

The tightening position has been exacerbated on the supply side by cutbacks in the second half of last year in China, most recently in December when China’s Henan province cut aluminum production by 20 percent due to reduced power supply following cold weather and insufficient coal supplies to thermal power stations. Production cutbacks due to reduced power supply come on top of earlier temporary plant closures due to power consumption target-setting under the last five-year plan. Once the year came to an end, many expected these restrictions to be lifted, but it would seem domestic and industrial power supply problems have taken over to continue to restrict supplies to smelters. Daily average primary aluminum output in China fell to 39,900 tons in November from 41,600 tons in October even as global production rose, according to the International Aluminum Institute (IAI), from 63,600 tons per day in November 2009 to 68,500 tons in November this year, and up from 67,700 tons in October. So globally, supply is increasing in spite of what may prove to be short-term supply cutbacks in China, aided over the year by a 22 percent surge in Chinese production prior to their power issues.

Stocks, however, have been gradually falling. Total visible stocks are reportedly down to 5.965 million tons in December, from 6.085 million tons a month earlier, as demand continues to improve and physical availability remains relatively tight. The long-term financing deals have continued to be supported by a strong forward price curve and relatively low financing costs. ETFs, while much discussed, have not had a major impact yet on prices, but as volumes increase and new players enter the ring, the physically backed ETF may well take over from the long-term finance deal as a primary driver of physical metal availability.

In a recent quarterly Metals & Mining report, HSBC forecast global output would increase in 2011 by 7.5 percent as Chinese production came back on stream after the winter and Middle east output picked up with new smelters reaching full potential. Smelter capacity is likely to reach 87% in 2011 and 89% in 2012, the bank says.

Graph courtesy of HSBC

While supply will increase, demand will increase faster, the bank believes, rising 8.6 percent in 2011 and driven by robust growth in emerging economies, with rising living standards driving demand for durable goods. While demand in western Europe, North America and Japan is only expected to grow by about 5 percent, aluminum is expected to benefit from its substitution in applications previously enjoyed by copper due to the high copper price.

HSBC sees last year’s surplus of 629,000 tons, down sharply from 1.4 million tons in 2009, shrinking further in 2011 before tipping into deficit in 2012.

These factors will support aluminum prices in 2011 even as the metal goes through a first quarter correction. No one is predicting the price to fall any further than about $2300 per ton and although HSBC is above consensus with a prediction of $2535 per ton later this year, most have the trading range as $2400-2500 per ton by mid-year. Supported by rising power and alumina costs and robust demand growth, HSBC sees the price at over $2600 in 2012 through 2013. A period of stability in pricing would be welcome compared to the volatility in copper and nickel, and would allow applications in the transport and electrification industries to be rolled out with greater confidence than was the case in 2006-7 when prices spiked unsustainably.

–Stuart Burns

Click Here to Get a Free Trial of Harbor Aluminum Intelligence Reports From MetalMiner!

(Continued from Part One.)

Meanwhile, German industrial companies are boosting investment in plant and equipment to ease capacity constraints driven by overflowing order books. Capacity utilization in a number of industrial areas, from chemicals to electronic equipment and cars, has reversed from a dramatic low to peak levels within only one year. According to an FT article, last year Germany’s gross investment into plant and equipment increased by 9.4 percent to €167.4 billion ($228.5 billion) in real terms, reaching growth levels seen in 2006 and 2007 and following a drop by a fifth in the year before. Analysts expect absolute investment numbers this year could reach the record level of €201.6 billion seen in 2008 as major automotive and engineering firms roll out multi-billion dollar investment programs.

So what are you worried about, I hear you say — surely this is great news for Europe, and what’s good for Germany is good for Europe, right? Well, yes, up to a point; the problem is the two-speed Europe is set to become even more decoupled. A rising Germany lifts all boats, as can be seen by the improving fortunes in France and the Benelux countries, but the peripheral economies of the Club Med and Ireland are not going to benefit to the same extent. Worse, the economic agenda for the single currency will soon have to be set by Jean Claude Trichet and the ECB to manage the central majority rather than the peripheral minority. On the back of this sharp return to growth, unemployment in Germany is dropping from 7.7 percent last year to a projected 7.0 percent in 2011: compare that to Spain’s 20+ percent or, worse, the 42.9 percent reported in a NY Times article for the 16-24 year age group.

Coupled with and as a result of the improving financial position in Germany, the country’s public sector deficit looks set to fall below the EU’s 3 percent ceiling, one year ahead of schedule, further strengthening Germany’s financial credentials.   This improving economic position is encouraging some of Angela Merkel’s coalition partners to start rattling the pot for tax reductions. Mr Brüderle, a leading Free Democrat, said unexpectedly speedy deficit reduction meant “room for maneuver on unburdening our citizens and gave him confidence that “tax cuts will come before the end of this parliament in autumn 2013.

In part Germany has benefited from the ultra-low interest rates that have prevailed across Europe since the financial crisis, but falling unemployment, surging demand, reducing personal tax rates and high rates of investment coupled with a low interest rate environment add up to rising inflation, a cocktail the German dominated ECB is only too well aware of. In a recent statement, Jean-Claude Trichet, president of the ECB, warned that inflation pressures in the Eurozone must be watched closely. Ominously he added that he would not let Greek and Irish economic weakness delay interest rate increases if they were needed. The ECB has shown itself to be extremely hawkish on inflation, not hesitating to raise rates even on the eve of the financial meltdown in 2008. The prospects for the peripheral eurozone economies are dire if rates are raised early and significantly, and yet with the major economies growing strongly, rate rises are inevitable. Europe is looking increasingly like a bipolar situation with each side’s priorities irreconcilable with the others.

–Stuart Burns

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

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If you’ve been living in any English-speaking nation (and not in a cave) for the past few weeks, you know that civilian possession of firearms, and especially semiautomatic handguns, has resurfaced as a white hot topic since Jared Lee Loughner shot Rep. Gabrielle Giffords of Arizona and many others in a Tucson supermarket in early January. While the auto market drives (no pun intended) supply and demand for lead almost singlehandedly, the metal does factor into ammunition for firearms.

Certain environmental groups petitioned to ban lead ammunition and fishing tackle in August 2009, citing harm to wildlife, but the Environmental Protection Agency rejected the petition, saying it did not have authority to authorize such a ban.

That was virtually the only notable speed bump for the fate of lead in the ammunition manufacturing process. (Lead, being much softer than steel or copper, makes for a much more forgiving munitions material.) As MetalMiner has reported in the past, President Obama’s election proved the primary demand driver for handgun and ammunition sales in early 2009:

“Distributors put the demand down to fears that the new administration’s political pledges will be put into effect limiting the personal ownership of handguns and the general economic malaise that folks perceive as being the precursor to a rise in theft, burglaries and muggings.

The election helped contribute to the sale of a record 9 million handguns in 2009, according to data from the National Shooting Sports Foundation, and a  26.1 percent increase in total production from the previous year to meet the increased demand.

Now, unfortunately for gun-control advocates but fortunately for gun and ammo manufacturers, distributors and sellers that trend seems to have hit again with a vengeance. (Examining the policy implications of bolstered background checks or guns getting into the wrong hands is a different post entirely; we’re setting out to focus on the industry numbers and effects here.)

A recent front-page story in Bloomberg Businessweek magazine profiling Glock, the Austrian handgun manufacturer, notes that there are an estimated 100 million civilian handguns in the US. Theoretically, if each of these handgun owners paid the full retail price of a Glock at today’s prices $499 the total revenue for gun companies would be nearly $50 billion!

Clearly, this isn’t the case, Andrew Molchan, director of the Professional Gun Retailers Association, has said. About 300 companies comprise the industry with $5 billion in sales in 2009.

But renewed fear that the current administration will crack down even harder on citizens’ Second Amendment right to bear arms in the wake of such tragedies is keeping gun manufacturers in the black. And this is good news for metals suppliers, as steel, lead or other alloys factor into most every piece of gun hardware or ammo magazine (even though plastics and polymers are becoming more and more prevalent). The indication from the data below seems to be that personal defense or family protection, rather than hunting or skeet shooting, drives recent firearms purchases:

Source: shootingindustry.com

US FIREARM PRODUCTION, 1989-2008 below:

Source: shootingindustry.com

MetalMiner has reached out to representatives at Beretta USA, among other manufacturers, and has yet to hear back. But stay tuned to see what the metal spend is like within the gun manufacturing industry, and whether it is forecast to increase or decrease in the coming years.

–Taras Berezowsky

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

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We may be hearing the phrase “Europe has some problems” (not for the first time), and the issue at stake is that strains are showing yet again in trying to contain multiple different economies, tax systems and business cultures into one pot.

While Greece, Ireland, Portugal and increasingly Spain grapple with high unemployment, low growth/even contraction, high levels of debt and an inability to raise finance at competitive rates, at the other end of the EU stand Germany and, to a lesser extent, France and the Netherlands, whose interlinked economies are powering ahead after a strong rebound in 2010. The German economy grew by 3.6 percent last year according to an FT article and is conservatively expected to hit 2.5 percent growth this year, possibly nudge 3 percent.

Source: Financial Times

Even France is forecast to grow at 1.5 percent this year, in part dragged along by German growth as the two economies are so interlinked both countries’ largest export market is the other. It’s what Andreas Rees at UniCredit in Munich calls the revival “of the good old Franco-German economic axis. Germany’s Ifo Institute said its business climate index hit 110.3 points in January, up from 109.8 the previous month and its highest level since it started tracking sentiment 20 years ago.

Source: Financial Times

The French statistics agency Insee said its manufacturing sentiment index jumped 6 points to 108, the biggest monthly rise since mid-1999.

(Continued in part two tomorrow.)

–Stuart Burns

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

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Everyone likes a mystery, right? Usually they are confined to the pages of a good novel, and when the book closes, so does the significance of the story. But, according to Reuters’ John Kemp, a mystery is playing out in the oil import statistics that could have ramifications for all of us, as the answer will dictate the direction of oil prices.

In an article this week, Mr. Kemp explains that very significant volumes of oil shipments were canceled, deferred or diverted at the end of last year from arriving at US Gulf Coast ports in November and December and the exact whereabouts of those cargoes are not precisely known. The figures quoted are for one of the five regions for imports in the US controlled by the U.S. Petroleum Administration for Defense Districts, known as PADD. The Gulf Coast is the largest and is known as PADD III. Some shipments may have been diverted to the buoyant Asia markets where they will either have been consumed or increased stocks. Depending on the destination, which of these two fates can be difficult to see as reporting procedures are opaque. Some of the cargoes were simply deferred and landed in January; indeed, in the week ending Jan. 14, PADD III saw a massive stock build of 6.9 million barrels, according to the EIA. Crude arrivals accelerated by 576,000 bpd (up 12 percent) to 5.4 million bpd, the fastest rate of unloading since late October. PADD III stocks normally rise during January and February, and carry on building in March and April. But last week’s reported build was an outlier, says John Kemp. The 6.9 million barrel stock increase in one week was almost as much as the region normally sees in the whole Jan-Feb period on average (7.4 million barrels) and is almost half the biggest total build (11.3 million barrels) ever recorded since 1981.

During November PAD III stocks dropped by a massive 30 million barrels, partly due to the 18.3 million barrels of deferred shipments, but also due to 8.5 million drawn down for refining. Stocks of refined products have also fallen in the last quarter of the year, both in Europe and the US, resulting in a reduction in forward demand cover from 59.1 days to 58.7 days.

The point here (and the mystery in the tale) is what happened to those 18+ million barrels of oil. It represents some two days of Saudi output of comparable US imports and is a sizable volume of oil. If it has been consumed it suggests the market is tightening faster than thought and Saudi Arabia’s position that OPEC has the world adequately supplied is underestimating the situation. The falling stock position has been what is helping propel the oil price back towards $100 per barrel. So the oil market is holding its breath to see if the draw-down at the end of 2010 continues or the inventory build seen last week is the start of a new trend. The answer could show the way for oil prices in the first half of 2011. The problem is, finding out what happened to that 18 million barrels will be particularly hard to find out if the portion that was diverted to Asia has been consumed (implying the market is tightening) or has gone into store (implying the market is in balance). The latter would suggest the market remains capped at $100 per barrel, the former that we could be in store for $120/barrel and all that price will entail for the transport sector, for inflation and importers’ balance of payments.

–Stuart Burns

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

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In our continuing coverage of the relationship between manufacturing and government policy, there’s a stark difference of opinion and data over whether business process offshoring has cost domestic jobs in the United States.

The Conference Board, a not-for-profit business and research firm that focuses on helping organizations’ performance and better serving society, teamed up with Duke University to release their January 2011 report on what offshoring is doing to domestic businesses. (The Conference Board also releases the Leading Economic Index LEI one of main economic indicators MetalMiner uses in tracking metal price trends.)

The Center for International Business Education and Research (CIBER) and the Offshoring Research Network (ORN) at Duke University’s Fuqua School of Business surveyed a number of companies, asking a range of questions about their offshoring goals and operations. The survey drew some rather surprising results.

“Over half of the participants in our survey say offshoring has resulted in no change in the number of domestic jobs in most functions, said Fuqua Professor of Strategy and International Business Arie Lewin. So, essentially, they’re saying we’re not losing jobs to overseas workers most of the time.

The Economic Policy Institute is saying the exact opposite. A recent EPI analysis, as relayed by Manufacturing & Technology News, concluded that the US visa programs that allow companies to hire skilled foreign workers the H1B and L-1 programs are “out of control and are “costing Americans hundreds of thousands of jobs. The author mentions four companies, Infosys, Wipro, Satyam and Tata Consultancy, which are specifically contracted to hire foreign workers and bring them to the US, only to get trained and sent back to India. This coincides with the Conference Board/Duke findings: “Manufacturers and high-tech/telecommunication companies are less likely to use captive offshore operations owned by the company and located on foreign soil and are moving increasingly toward the use of third-party providers of offshore labor.

Granted, most of these positions are in the IT sector, a heavy focus for offshoring research. “The finding that the U.S. software sector has the highest ratio of offshore to domestic employees almost 13 offshored jobs per 100 domestic jobs may be a reflection of a scarcity of domestic science and engineering graduates in the U.S, said Lewin of Duke’s business school.

That statistic points to the crux of the matter for offshoring. The report shows evidence that offshore practices are “no longer driven by cost cutting, but by enhancing innovation and increasing speed to market. (This is something Spend Matters, our sister site, has written about extensively.) The average cost savings for companies actually decreases in many cases, as they are increasingly dealing with unexpectedly high costs in developing offshore operations (e.g. training programs, loss of managerial control, etc.)

Just because offshoring news good or bad hits the IT sector first, that doesn’t mean metals manufacturing is immune. Although specific data from the Conference Board/Duke report wasn’t (freely) available for the metals industry, analysts at NASSCOM, an Indian IT trade association, indicate that it’s only a matter of time before US manufacturing workers may be in trouble: “The Indian outsourcing firms are quickly branching out of IT services and into aerospace design, retail, pharmaceuticals R&D, legal and banking systems and systems integration of the U.S. manufacturing sector, according to the Manufacturing & Technology News article. “Outsourcing companies in India are targeting new industrial sectors, new technologies and services “from smaller companies,” says NASSCOM president Som Mittal.

–Taras Berezowsky

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

Register for the live simulcast today!


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