Market Analysis

MetalMiner is pleased to have guest columnist Jack Taylor contribute a GOES market analysis. Jack is an independent metals analyst and consultant focusing on ferrous and base metals used in the energy industry. Prior to working as a 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)

Many investors and analysts have been watching rare earth metals markets over the past few years, yet another metal, not as rare but just as valuable, has gone unnoticed – Grain Oriented Electrical Steel (GOES). GOES is a high value product that is almost six times the price of hot rolled coil; it is mainly consumed by transformer manufacturers. Indirectly, GOES impacts the utility market since it represents as much as 40% of transformer material costs and, therefore, influences the construction and maintenance cost of utilities operations. GOES represents only 0.2% of finished steel products volume with very limited supply due to a small number of producers: two in the U.S. (AK Steel and ATI Ludlum) and 200 world-wide as reported by Novolipetsk Steel. GOES base price in years past has been set on a yearly basis with a surcharge added to circumvent any fluctuation in raw material costs.

Source: US Census Bureau; compiled by Jack Taylor

GOES pricing is heavily influenced by the demand of power construction and supply of raw materials. Power construction spending has declined 7.9% while overall non-residential construction spending collapsed 13.2% since January of last year according to current U.S. Census Bureau (USCB) data. Hot rolled coil, the largest raw material cost component of GOES, usually dictates where the final surcharge could travel. Surcharges can fluctuate significantly and be substantial: earlier, in 3Q2008, domestic producers increased charges to over $1000 per short ton while, as of this writing, they are near $350 per ton as stated on domestic producers’ websites.

Last year’s implementation of the new Department of Energy (DOE) efficiency rules also impacted demand for GOES by transformer manufacturers. Most new transformers must use thinner laminations of GOES, which will result in the increase of the number of strips required, while also increasing the weight of the transformer along with material costs. Conversely, many other countries have not set the same efficiency standards and, therefore, many producers simply do not make sufficient amount of GOES with specs meeting new DOE regulation for import to the U.S. With only two domestic producers, GOES sales have remained more profitable compared to other types of steel. There is little expectation to increase the number of GOES manufacturers as the entry barrier is high due to the considerable cost of research and development. Those that have the technology have increased production but not enough to meet the 200K ton per year shortage worldwide according to Sumitomo Metals Industries.

Over the course of 2010, GOES pricing decreased nearly 15% due to power generation projects being delayed or canceled according to my estimates. Less demand for transformers caused unfilled orders of power generation equipment to rise 14% over the past year (USCB). Furthermore, rising raw material costs also dampened transformer and GOES demand somewhat as many buyers pushed back delivery dates. Hot rolled coil and steel plate costs rose more than 20% last year due to iron ore and coking coal suppliers switching to quarterly contracts instead of yearly contracts in order to capture higher open market pricing. Consequently, transformer costs grew 4-10% in response to escalating steel prices last year according to my findings. On a positive note, given most high voltage transformers take 12-18 months to manufacturer new orders increased 27% (year-over-year) during 2010 in anticipation of a pickup of power generation spending over the next few years. Next month we will dive into the GOES forecast for 2011 and what impact it will have on the power industry.

–Jack Taylor

More than two years ago, MetalMiner reported that one of the world’s leading tantalum producers, then Talison Minerals (now Global Advanced Metals) closed its operations at Wodgina due to poor demand just after the global economic crisis in late 2008. This past Monday, Global Advanced Metals announced it would re-open the Wodgina mine as well as Greenbushes, its processing operation, to the tune of 700,000 pounds of material. Wodgina has annual capacity of 1.4 million pounds of tantalum pentoxide. The Wodgina operation, according to a press release on the company’s website, represents one third of global supply when fully operational.

Clearly some market dynamics have shifted within the tantalum market.

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Try keying in “tantalum prices” into Google and one can find few if any reference prices, though Infomine does have some pricing (though it’s unclear exactly what the pricing covers) or perhaps the old articles we ran back in early 2009 including this one (tantalite ore back in Dec. 2008 had been in the $36-37/lb range) provide additional price points. Reuters published a piece today with European spot pricing (scroll further down). The only other pricing available involves spot pricing from Africa. But spot pricing may no longer provide a viable means of understanding market trends, primarily because that market has dried up, so to speak.

Welcome to the murky world of global tantalum pricing, in which a few world buyers and sellers set prices based upon actual transaction prices.

Sources tell us that historically long-term contract pricing runs higher to the spot price. And that means a concentrate price in the $120/lb range. How does one come up with that figure?

Let’s review tantalum’s forms and a few rules of thumb. Tantalum comes in basically three forms: tantalum ore and concentrate (where our sources tell us long-term pricing could easily exceed $120/lb with African spot prices at $60/lb, though one can’t actually buy African tantalum at that price), tantalum oxide/salts (which essentially double the ore prices) and finally, capacitor-grade tantalum powder, now at approximately $300/lb according to our sources. It’s this last grade that finds its way into the electronics we own.

In 2008 Global Advanced Metals had asked for higher prices to justify production cost increases at their Wodgina mine. Considering mining economics, one can assume the mine achieved its price per pound target based upon what they had sought in 2008, $120/lb.

We speculate their economic break-even point at about $100/lb. The fact they have made this announcement, opening their mining operations suggests to us that tantalum concentrate prices may already be in the $120/lb range. Reuters published this European tantalite (ore) spot market price chart today:

Source: Reuters

So why the price spike for tantalum?

As a reminder, tantalum is used in cell phones, DVD players, PCs, digital cameras, LCD screens, and game consoles. It is also an essential component for jet turbine blades, nuclear reactors … and the list goes on. On January 1 of this year, the Frank-Dodd financial reform bill went into effect requiring US corporations to “state whether they source ‘conflict minerals’ from both Congo and neighboring countries” and “report on steps taken to exclude conflict sources from their supply chains, backed by independent audits.

Even China has stopped purchasing tantalum on the spot market, because of the conflict minerals legislation. China has historically served as the largest purchaser of this material. It should come as no surprise that Chinese ODMs and contract manufacturers had great concern and interest in keeping their US customers from Apple to Intel to Toyota.

The largest tantalum processor in China, Ningxia Non Ferrous Metals, purchased 91 metric tons of tantalum concentrate from CI Fluminense (Brazil) in July 2010 at $80.00 per pound. At the time, that represented a 30% premium to the existing tantalum price of $60/lb.

Will these new prices stick and will new capacity come on stream? The signs may suggest yes.

More on tantalum and other conflict minerals in our CM Resource Center here. 

The US economy is giving off a bevy of mixed signals, as some economic indicators point toward good signs of recovery while others highlight the uncertain nature that the manufacturing sector faces.

Much of that uncertainty is manifested in fears of rising inflation. (What do you say to that, Ben Bernanke?)

In terms of the raw numbers, two indexes we track are showing increases. The Institute of Supply Management’s Purchasing Managers’ Index (PMI), certainly one of our key indicators, posted a 0.4 percent increase in December 2010, which put the index at 57 percent. (Click on the table below for a larger view.)

Source: Institute for Supply Management

This is good news, and shows that overall US manufacturing is growing (when the PMI is over 42 percent, it generally indicates growth), and it corresponds with roughly 5 percent GDP growth. The upward trend has generally been sustained since the dark days of mid-2008.

Source: ISM

The Primary Metals and Fabricated Metals Products sectors reported overall growth to the ISM; aluminum, copper, nickel, steel and stainless steel, tin plate and titanium dioxide all posted increases in price.

Which brings us to the other index that has a lot to do with prices the Producer Price Index (PPI), put out by the Bureau of Labor Statistics and measuring the average change over time in the selling prices received by domestic producers for their output. Metals buyers and sellers are not alone in battling inflation to wit, December 2010 saw the largest increase in the PPI since last March, posting a 1.1 percent rise in finished goods. (Click on the graph below for a larger view.) General freight trucking increased 0.4 percent, and general warehousing and storage increased 0.7 percent.

Source: US Bureau of Labor Statistics

But raw material price rises are up and rising across the board, and amid the gradual growth that manufacturing has been experiencing, this could be cause for concern. Coking coal prices, just for an example, could see sustained rises (and not just because of the latest act of God the disastrous floods devastating northeastern Australia). Oil is again flirting with $100 per barrel, and that has a direct effect on shipping costs.

The Financial Times and Reuters have picked up on this with a raft of stories in the past few days, allowing readers to hear a host of industrial voices decrying the price increases. John Byrne, Boeing’s director of commodities, and Chris Lidell, GM’s CFO, both expressed concern that raw materials costs would cut into 2011 profits in a recent FT article. The largest metal components of the average car are steel, averaging 2,100 pounds, and aluminum, at around 400 pounds, according to the piece and let’s not forget copper. David Leiker, an auto analyst at RW Baird, “estimated that raw materials made up about $3,500 of a car that sells for $28,000.

A Reuters analysis took an interesting look at how consumer product manufacturers are ingeniously cutting costs Kraft shorting its Singles packs by two slices, Kimberly-Clark skimping on the size of its toilet paper squares but the woes extend to base metal industries as well. China’s Baosteel, the country’s biggest steelmaker, recently upped its prices again. The article quotes Oliver Pursche, co-manager of the GMG Defensive Beta Fund, saying “the greatest uncertainty for commodity prices, especially metals and energy, is how aggressively China moves to try to cool its economy.

“If there’s a sense China will continue to raise interest rates, raise its loan requirements and try to slow things down, you can see a pretty quick sell-off,” he told Reuters.

American companies are also digging in their heels. Wagner Cos., a Wisconsin-based manufacturer, expects to see steel prices increase anywhere from 5 to 10 percent this year, and is bracing itself by “beefing up steel inventories at lower prices, according to the Milwaukee Journal-Sentinel.

One of the bottom lines here is that we must watch steel closely as it comes out of its trough early this year, since it reaches across so many industries and shows up in so many finished goods. (Not only in the US but also globally, especially as construction and automobile demand pervade emerging economies.) As price inflation could hit steel even harder, we’ll keep an eye on how metal manufacturers continue to cut costs in innovative ways.

Join us for a free webinar on steel price trends and outlook for 2011 along with guest speaker Metalwest, where we’ll discuss how OEMs can improve profitability through lean metal supplier programs.

–Taras Berezowsky

There are two major sources of fear (and hence instability) in today’s markets – credit tightening caused by rising inflation in China, and debt woes caused by bank and sovereign insolvency in the Euro-zone.

Both have the effect of causing risk aversion when they come to the market with bad news, and exchange rates and metal prices have been particularly sensitive to both over the last few months. China, inflation and Asian credit markets were the subject of a separate blog a few days ago and we might be excused for thinking this week’s Euro strength signals the end of European debt worries; particularly following Portugal’s successful floating of €1.25 billion of bonds maturing in 2014 and 2020 last week, followed by Spain selling $3 billion of five year debt, covered in an Economist article. Even though rates were a little below levels the week before, they are still — by historic standards — punitive rates of 6.7 percent in the case of Portugal and 4.54 percent in the case of Spain.

But to assume the storm has passed would be to take too simplistic a view. Portugal in particular cannot afford to pay 6.7 percent when its public debt is high and rising. In a country that has seen a steady loss of wage competitiveness since the 1990s and has had no better than feeble GDP during much of that time, it has suffered a persistent budget deficit that these rates of interest will prove unsustainable to finance. The country’s banks have been relying on the ECB for funding since last spring and with net foreign debts of more than 100 percent of GDP, those banks are horribly exposed to default. Greece had a fiscal problem it spent more than it earned; Ireland had a property crisis putting its entire banking system at risk; but both countries were capable of rapid growth in good times — Portugal has been on a long-term decline sustained only by EU largess.

A Telegraph report suggests some of the success for the Portuguese and Spanish bond auctions must go to buying by China. Chinese vice-premier Li Keqiang promised to buy Spanish debt during a visit to Madrid last week, reportedly up to €6 billion ($8bn). China was also rumored to be the secret buyer in a recent private placement of €1.1 billion of Portuguese debt, according to the paper. Although how much China’s buying impacted rates compared to the ECB, who was widely credited with buying through up to 20 brokers behind the scenes, is debatable. Their actions, though, have not passed without typical European paranoia, the paper explained, as Herman Van Rompuy, the European Council’s president, said during a visit to London that the Chinese may have “political” thoughts in the back of their minds for coming to Europe’s help, and gave a strong hint that they are also engaging in currency manipulation. “When they buy euros, the euro becomes stronger and their currency a little bit weaker. That is not neutral in regard to their competitive position. Yes, well, Herman, a measly $8 billion isn’t going to shift the exchange rate for very long, is it, but still we take your point: China’s purpose is certainly not altruistic. A more likely suggestion for ingratiating itself with Europe ahead of a review of the arms embargo imposed after Tienanmen Square massacre in 1989 is a desire for relaxation of that embargo and access to European technology.

What Portugal needs more than Chinese purchase of its bonds is adoption of Chinese working practices. The reality is Portugal (and Greece and Spain) will never work their way out of this situation without a massive and profound improvement in productivity, including working longer hours and demanding fewer taxpayer-funded comforts. This won’t happen though; cultural attitudes have become deeply entrenched (just witness the riots that attended the initial wave of fiscal changes proposed in Greece last year; only the Irish have grasped the nettle and seem willing to take the pain.) The southern Med states are relying on Germany to bail them (and the bankers who have lent them the money) out and while that story plays out, Euro-zone instability will continue — and with it, significant volatility. We could easily see the Euro drop back to its 2010 lows of $1.1873 during 2011 and goodness only knows what the effect of a ‘twin-track Europe’ is going to be this year and next. The Club Med contracting and northern Europe led by Germany powering ahead: the strains can only get worse.

–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:

Register for the live simulcast today!

It must be a lonely existence as a hedge fund manager. Depending on your area of focus, I wont call it expertise that depends on the manager. But by their very nature, many hedge funds make their money betting against the pack. Given enough time, betting against the pack in any remotely cyclical market which is most if not all means sooner or later, you will make good. But it requires patience, very deep pockets and committed investors.

Mark Hart of Corriente Advisors is one such person. Having made a fortune predicting both the subprime crisis and the European sovereign debt crisis, he now has a fund betting China is a train crash waiting to happen, according to a Telegraph article on the topic. The paper also quotes an unnamed academic saying: “Economists have contrarian views all the time. But these hedge funds have their shirts on the line and do their analysis carefully. The flurry of ‘distress China’ funds is a sign to sit up.

As a Bloomberg article explains, countries across Asia are attempting to grapple with accelerating inflation pressures as food and commodity costs climb and liquidity rises with an influx of foreign capital. Nowhere more so than China, where reserve requirements have been raised four times in the last two months and interest rates have been raised twice since October; the Shanghai Composite Index has fallen 13 percent over the last year due to fears that Beijing will slam on the brakes to control inflation. The article quotes Qu Hongbin, co-head of Asian economic research at HSBC in Hong Kong: “Beijing needs to act more decisively on policy tightening to stop inflation from accelerating too fast, he said, predicting at least 1.5 percentage points more in reserve-ratio increases within six months, and sees two quarter-point rises in the one-year lending rate, now at 5.81 percent. According to the FT, reserve requirements for the six largest banks in China will stand at 19 percent later this month, somewhere between Malawi and Tajikistan and nearly double the US’ 10 percent, or ten times Germany’s 2 percent.

Mark Hart’s point, mirrored by a growing band of “distress China” funds, is that China has been fueling a bubble for years. According to the Telegraph article, China has consumed just 65 percent of the cement it has produced in five years, after exports. The country is outputting more steel than the world’s next seven largest producers combined. It has 200 million tons of excess capacity. In property, it quotes Hart’s firm as saying it had found an excess of 3.3 billion square meters of floor space in China yet 200 million square meters of new space are being constructed each year.

Despite the vast population, the property is generally out of the price range for most, particularly in the eastern provinces. House prices are around 22 times disposable income in Beijing.

The wider fear, mooted often enough before, is that much of the $1.7 trillion loaned by China’s banks to local state entities is not commercially viable, like the inner Mongolia city of Ordos Shi, built for one million people, that is almost entirely empty. A TV report reveals empty streets, housing estates, shops and restaurants. But others disagree, saying China’s growing, urbanizing and gradually more affluent middle classes will fuel demand for decades to come.

So far, commodity markets agree with them. Iron ore is forecast to break $200 per ton next month on strong demand, a new high, and driven, supporters say, by surging demand for rebar (a key construction material.) Only time will tell who has the reading of the leaves correctly. China has consistently surprised on the upside in the past, but nothing lasts forever and China’s bull run will, given time, adhere to the rule too. The question is, when?

–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:

Register for the live simulcast today!

The floods in Queensland, Australia, are taking more than a human toll, tragic as that is.

Consumers in Asia will have to pay higher prices for coking coal as the floods could remove some 14 million tons of coking coal from world markets out of a forecast annual seaborne volume of 259 million tons in 2011 some 5 percent of global supply, a Reuters article reports. More than half the world’s metallurgical coal exports come from Australia and roughly 90 percent of that comes from Queensland, mostly the Bowen Basin.

No surprises, then, that many ships are lying offshore from the Queensland coast, unable to load cargoes and with little prospect of an early resumption of business. But Queensland is not the only source of bulk commodities to suffer from adverse weather conditions, according to Guy Campbell, head of dry bulk at Clarkson Shipbrokers, quoted in another article. Weather-related disruption to shipping on Canada’s St. Lawrence Seaway is hampering iron ore shipments and a month’s rains in Brazil fell in one day this week, causing 250 deaths that hardly hit the headlines, but is equally causing chaos. It would be too simplistic, though, to blame the weather, varied and dramatic as recent events have been, as the sole reason for the collapse of the capesize vessel Baltic Dry Index.

Source: Reuters

As this graph from Reuters shows, from a peak in October of 2,784, the index has dropped to a 21-month low of 1,453, last seen in January 2009 when global freight momentarily froze as trade finance dried up in the wake of the financial crisis. Capesize vessels typically haul 150,000 cargoes of dry goods like coal, iron ore and grains. Duncan Dunn, a senior director with SSY Futures, said around 200 new capesize vessels joined a global fleet of around 1,000 last year. An additional 200 were expected to arrive this year, he said, while London-based Simpson, Spence & Young shipbrokers put the figure even higher at 241 new vessels due. The reality is there are too many capesize vessels coming onto the market in too short a time frame and the demand is not there for that volume of shipping space. Consequently, rates have plummeted well below operating costs. Including the cost of finance, most capesize vessels incur operating costs of at least $15,000/day; rates have dropped from US $46,284/day in October, to $10,285/day today, forcing ship-owners to start laying up vessels.

Perversely, smaller panamax-size vessels, which usually transport 60,000-70,000 ton cargoes, are earning a premium, currently in the region of US $15,742/day, as the smaller vessels are considered more flexible, but one has to ask — will it last? Falling freight rates will not in themselves negate the rise in commodity prices such as coking coal, but it will go some way to mitigating increases. The drop in demand will not be helped in the year ahead by Vale’s move into the shipping market with the introduction of the first of many capesize vessels in their new fleet. When you look at the ferocious cyclicality of the freight market, you have to ask, who would want to be a ship-owner? Only those with deep pockets is the answer!

Join us for a free webinar on steel price trends and outlook for 2011 along with guest speaker Metalwest, where we’ll discuss how OEMs can improve profitability through lean metal supplier programs.

–Stuart Burns

Arguably the LME steel billet contract came of age last year.

As the following graph from data released by the London Metal Exchange shows, volumes picked up dramatically throughout 2010 and apart from a hiccup in October, show a strong upward trend.

Source: LME data

What is behind the surge in enthusiasm for the steel billet contract? It’s difficult to be precise, but a number of factors have contributed to its new-found popularity. One significant step forward was that the LME merged its Mediterranean and Far East steel billet contracts into a single, global steel billet contract in July 2010, although volumes were already on an upward trend; this will have helped increase liquidity in the contract.

Another is a realization and gradual acceptance by both the industry and financial markets that the LME steel billet price is a fair and consistent reflection of the scrap-to-billet-to-rebar market and provides an effective hedge for producers and consumers in those industry segments. For scrap dealers, it represents an index and hedging opportunity for future sales as scrap is being accumulated. For steel billet producers, it is a hedge both on scrap costs and steel billet sales and for rebar producers and consumers it is a hedge on input costs, and hence, rebar sales prices going forward. As this graph from the LME shows, the US scrap price, the LME Steel Billet price and the Turkish Rebar price have fallen into a remarkably high degree of correlation this year —

Source: LME

— sufficiently high for banks to require clients to cover trading positions with hedges via the contract.

But why would the LME choose these three metrics to illustrate the contract’s success? Simply because this is what the LME steel billet contract is currently being driven by. Scrap arises in the US East and Gulf Coasts, is shipped to Turkey where it is used to produce steel billet (Turkey is not the only destination for US scrap exports, of course, but being one of the largest prices in other markets are in part driven by Turkish demand) and in turn, the Turkish mills export both steel billet and the downstream product of billet rebars in considerable quantities back to the US, the Middle East and Europe. In addition, the sizable Turkish steel industry came about because of a large domestic demand driven by long-term infrastructure and construction demands in the country Turkey is a sizable rebar consumer in its own right. Nevertheless, Turkey is a major regional player, according to the Steel Index: Turkish billet exports surged over 50 percent in 2010.

Is it a total correlation? No, other factors do come into play, although much of the Turkish industry is an import scrap- or billet-and-export billet-and-rebar dollar-denominated sum, so fluctuations in the Turkish Lira also come into the equation. In addition, if, as now, scrap prices become excessively high as a recent Reuters article explains, scrap prices are higher this month than in January 2008, but steel demand is nowhere near as high then rebar mills will switch to buying steel billets rather than scrap, supporting the CIS Steel billet price at the expense of scrap prices. However, the arbitrage opportunity is limited and if scrap prices weaken as a result then buyers promptly switch back, so rather than a major distortion it can be seen as a balancing mechanism keeping the three products in a steady inter-relationship. CIS Steel billet prices tend to follow rather than lead the Turkish scrap/steel billet/rebar market over the medium term.

Looking forward, in June 2010 the LME gave approval for New Orleans as a point of good delivery for its steel billet contract followed by Chicago and Detroit in August 2010; more recently the first US producer Sterling Steel Company based in Sterling, Illinois, applied in October for registration of their brand with the exchange, FuturesMag reported last year. While US volumes are not a factor in the 2010 rise in lots traded, it is a clear indication of the growing acceptance of the contract and its internationalization as a hedging instrument.

Could steel billets rival copper or aluminum, the LME’s behemoth lead contracts? Not in the short term, but it’s taken those metals decades to reach their global acceptance. The billet contract does appear, though, to have found its first major niche and has become a valuable hedging tool for players in that market. Time will tell the extent to which it breaks outside those confines and finds wider acceptance.

–Stuart Burns

Join us for a free webinar on steel price trends and outlook for 2011 along with guest speaker Metalwest, where we’ll discuss how OEMs can improve profitability through lean metal supplier programs.

If you’re in the electronic solder or food packaging business, or if you buy tin for plating (among other applications), prepare to be paying more for the metal in 2011. If recent supply-side issues are any indication, worldwide exports might be very constricted in the first half of this year.

Sure, Indonesia has said it will get back in the producing game, and as the world’s No. 1 exporter, intends to roll out 90,000 tons of tin in 2011 after quite a shortfall. The country reported a 12.3 percent drop in production in 2010, to nearly 79,000 tons, according to Reuters.

As of this writing, tin’s LME cash price sits at $26,790 a ton, and the three-month buyer price at $26,775. Overall, tin experienced nearly a 60 percent rise in 2010.

Source: London Metals Exchange

The LME’s warehouse stocks counted 16,890 tons on Jan. 11. (Also, ETF Securities, having released a physical tin ETF late last fall, reported that “warrants for 80 tons of tin have been bought as of Dec. 22, 2010, but growth has been moving slowly.)

At the end of December, Bambang Setiawan, director general of coal and mineral resources at Indonesia’s energy and mineral resources ministry, said, “If the price stays high like this, production can reach around 90,000 tonnes (next year),” at a news conference according to Reuters.

There may be a chicken-and-egg situation here, however: If the price drops, then the producers may take more production off stream but then, if they’re not producing and supply drastically drops due to any number of external factors, then the resulting tightness pushes prices higher, thereby inflating cost of production.

Right now, though, many signs in Indonesia and elsewhere point to upward price movements. Weather has played a huge role in reducing Indonesia’s tin production, as torrential rains and winds had come earlier than usual, washing out the already-depleted easily-accessibly onshore operations. The already-high market price also encourages smuggling. State-owned tin producer PT Timah (which singularly accounts for 50 percent of the country’s production) “acknowledged that the growing number of illegal miners collecting tin ore surrounding Timah’s properties affected the company’s production, reported the Jakarta Post.

China and Peru, the world’s other leading tin producers, dropped production in the second half of 2010 as well. China’s power issues, stemming from energy costs, forced several smelters to halt output. In Peru, “October (2010) tin-in-concentrate production amounted to 2,417 tonnes, 25.2% lower than in the same month last year. Cumulative production in the first 10 months of this year has fallen by 7.7% to 28,979 tonnes, according to the International Tin Research Institute. High prices are spurring companies in other tin-producing nations Malaysia, for one to begin securing new licenses.

“Tin prices could potentially hit record highs at around $30,000 a tonne next year before falling sharply back as producers ramp up output, consumer goods group Henkel told Reuters in a Dec. 8 interview.

This increased production could have volatile effects in 2011. The biggest problem would be that the hurried push for output ends up in oversupply, essentially lagging behind the price, and desperately trying to catch up to capitalize on $30,000 tin. However, getting (especially new) production on stream takes a long time where will demand be when there’s enough global tin stock to meet it?

–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!

The aluminum supply market is, to distort an overused phrase, a game of two halves.

On the one hand we have China, both the world’s largest consumer and largest producer, in which both inventories and production capacity are high compared to the aluminum market in the rest of the world. And on the other hand we have the western world producers, nominally with idled capacity (much of which in truth may never come back on stream) and where in 2011, markets may even be operating at a slight production deficit. Given that China has effectively removed itself from the global market for the next year or two, with the NDRC (National Development and Reform Commission) making it clear that China will no longer be a major aluminum exporter, global balances are in practice tighter than they first seem. As my colleague Taras reported in a recent MetalMiner article, Jorge Vazquez of Harbor Aluminum downplayed the significance of western world inventories held as financial plays suggesting they are unlikely to come back onto the market quickly, particularly with the probability of aluminum ETFs coming along to sop up stocks, and even if they do come back to market, stocks will be consumed by rising demand. Rising physical premiums in western markets and even a rising ingot price are therefore likely features of a gradually tightening market in 2011, while China will be playing to a completely different tune.

The dynamics in China are very much more volatile. Raw material and aluminum production costs in China are higher than in the west, alumina is trading at 16-17 percent of the ingot price as opposed to 13.5-15 percent in the west. Electricity, when it isn’t being rationed, is more costly than most major western producers and significantly more than Middle Eastern and Russian smelters. With exports closed off by taxes resulting from Beijing’s view that exporting primary aluminum is tantamount to exporting energy, smelters become hostage to the opposing forces of domestic demand, costs vs. SHFE price and the on/off nature of power supply in China. A Reuters article reports that right now, arctic winter weather conditions in many parts of the country are causing severe power shortages and energy-guzzling aluminum, zinc and lead smelters may find themselves at the forefront of rationing. This comes on top of last year’s power rationing to meet spurious power consumption targets set by Beijing in their last five-year plan, targets that smelters were hoping would promptly be relaxed at the year end allowing them to resume full production. As a consequence, production has been recovering in the rest of the world but falling in China for much of the last year, as this graphic from Reuters shows:

Source: Reuters

The SHFE price has remained relatively flat these last few months, whereas the LME price has been on the rise, as this graph from MetalMiner IndX shows.

Source: MetalMiner IndX

We could see LME trading at a premium to the SHFE price next year, but much will depend on power supplies and production costs in China keeping sufficient smelter capacity operating to continue the domestic oversupply.

–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:

Register for the live simulcast today!

2011 will mark the first time MetalMiner has formally published an economic outlook for the year (though admittedly we will rely on other experts to do so)!

No matter what metal market outlook readers may follow, understanding where demand will come from based upon the global economy will play a large role in determining the direction of metals prices, be they steel, aluminum, copper or even precious metals. To come to some sort of analysis, we turn to a couple of different organizations with nearly opposite forecasts. But first we have to discuss our own track record regarding reading the economic tea leaves. We (and specifically, I) have leaned toward a more bearish forecast in the past than my colleague Stuart. The divergent views come down to consumer buying behavior that traditionally has driven the US economy.

We consider this ironic, since the economists viewed as most accurate by Vistage International, a professional CEO organization to which we belong, called both the recession as well as the recovery. And to add insult to injury, I wrote two pieces on their forecasts. You can read their call for a recession here and their more optimistic forecast for 2010 here. Needless to say, I jumped at the opportunity to hear their 2011 forecast delivered via webinar on December 17.

We’ve included some of their key points below:

  • Exporters look more positive based on growth rates in OECD and emerging economies
  • When interest rates start to change, we’ll see some big supply/demand shifts and price increases
  • We will continue to see more commodity fund investments
  • Prices will increase between 2012 and 2014, creating a squeeze on margins
  • We are in the early stages of a cyclical employment recovery; however, unemployment won’t drop below 5 percent unemployment anytime soon (one of the more interesting points made by Alan and Brian Beaulieu of the Institute For Trend Research involved the time needed to get back to 5 percent unemployment the pair estimated it would take 10 years of adding 230,000 jobs/month)!
  • The brothers still call for the dollar to remain the world’s reserve currency, at least for the next ten years

Current economic indicators tell an interesting story, particularly for steel and copper markets within the US:

  • Non-residential construction though the numbers are still down, the rates of change appear better
  • Housing will flip into what ITR calls Phase B (growth) real fast (they characterize the economic cycles as going from A-D, with C at the peak of the growth cycle and D moving down into recessionary territory). Then housing will slide back down, but head back up into positive growth in 2012
  • Where will commercial construction go? According to ITR, if industrial production moves into recession in 2013 2014, commercial construction may weaken early and sag, but not drop off¦similar to the housing market (not a double dip decline but a sag). Unfortunately, ITR says, “this could be an extended scenario.

So what specifically does ITR say about the economy? They call for 2011 to go through a “business wholesale high through 2012-2013. Then the economy will begin to slow down. By 2014, the overall economy as defined by GDP and industrial production, in particular, will move into the red zone. Their forecast calls for the first negative numbers to appear in late 2013 or early 2014.

–Lisa Reisman

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