Metal Appreciation

To have some fun on this holiday weekend, we here at MetalMiner are retelling the story of the aluminum shortage that nearly brought the Midwest to a standstill. We assure you, these things ACTUALLY happened…

The Great Barbecue Aluminum Shortage

One of the victims before the cataclysmic event, oh the humanity!

One of the victims before the cataclysmic event.

Aluminum Futures soared in trading the Friday before Memorial Day weekend as a barbecue aluminum shortage across the Midwest reached critical mass. It all started in January during a Green Bay Packers – Chicago Bears game at Soldier Field when faulty scanning equipment purchased by the administration of Mayor Rahm Emanuel accidentally rendered every hibachi, kettle and propane grill within three miles of Soldier Field incapable of maintaining structural integrity. Bears tailgaters blamed Packers tailgaters. Packers tailgaters blamed Bears tailgaters and paramedics on the scene had to treat 54 fans for what was thought to be excessive and involuntary bratwurst ingestion. Some of the fans in the aforementioned parking lot fight needed medical attention, too.

FREE Download: The Monthly MMI® Report – covering the Aluminum market.

Since then, the rare aluminum-disintegrating bug unleashed by the faulty security scanning equipment has gone airborne and spread as far west as Arrowhead Stadium in Kansas City and as far east of Heinz Field in Pittsburgh, leaving a trail of crying football fans in its wake. Fibers of the virus carried back to Wisconsin on huntinggear Packers fans wore to the game not only eradicated all barbecue aluminum within the Green Bay and Milwaukee metropolitan areas but they also disintegrated four tree stands that Packers fans attempted to use the next deer season.

Barbecue manufacturers such as Weber-Stephen have tried to keep up with the sharp rise in demand, but long load-in, load-out times at aluminum warehouses, where workers are now required to report for duty in full beekeeper suits to keep the aluminum-eating virus out, have complicated the situation further.

“I feel like I’m goin’ into withdrawal here, Todd,” said local man Bill Swerski. “What’s a man wit’out ‘is grill? Half a man, dat’s what I say.”

Have a great holiday weekend from all of us at MetalMiner!

One of the victims in happier times.

One of the victims in happier times.

Source: fineartandyou.com

Source: fineartandyou.com

It’s been quite a quarter for all things aluminum here at MetalMiner, enough to lead this quarter’s Best of MetalMiner post – from exclusive coverage of LME warehousing of the stuff, to CME Group’s new aluminum contract, to Seung Mo Park’s beautifully meticulous aluminum sculptures (see photo).

The latter was brought to our attention by Spend Matters Chief Research Officer Pierre Mitchell, originally alerted to the artist’s sculptures and mesh layers by his brother, whose name spurred an intra-office conversation about ions, molecules and covalent bonds.

Don’t ask. But: never a dull moment!

FREE Download: The Monthly MMI® Report – price trends for 10 metal markets.

Back to the hard-hitting stuff – why should you pay attention to our aluminum coverage?

We Crushed It On Aluminum – Here’s Why

crushed-aluminum-can

MetalMiner ripped off the foil of the LME warehousing scheme very early on, and broke down exactly what it means for primary producers, secondary producers and downstream consumers – check out our infographic if you haven’t already.

MetalMiner Executive Editor Lisa Reisman, Editor-at-large Stuart Burns, Lead Forecasting Analyst Raul de Frutos and other MM team members also broke down the disconnect between the Midwest aluminum premium and the LME prices, while getting the scoop on CME Group’s new aluminum contract and why it may be beneficial for commercial buyers in light of the LME fiasco:

Are you an aluminum buyer? Want to know how to hedge your price risk? Here’s a practical guide.

Nickel Taking an Elevator Joyride

elevatoruparrow

We’ve also had our finger on the pulse of nickel and its rapid ascent to the upper echelon of base metal prices once again. After tanking, the Indonesian export ban, Russian sanctions and other externalities helped push nickel prices to near-record levels. Stuart wrote the most-viewed article of the year on this issue:

Want the technical side of the price outlook? Raul gave it to us straight:

Oh Yeah, One More Thing

MetalMiner-forecasting-one-sheet-thumbnail

Monthly price forecasts for 10 different metal categories are available to members only!

If you click on Raul’s article above, you’ll see that it’s classified as Member Content. If you’ve never been to the site before (or if you have but just kept your blinders on), you’ll notice that we’ve introduced MetalMiner Membership this quarter.

Think of it as an awesome club to which all industrial metal buyers should belong.

Not only do you get all of our free and premium content, complete with analysis based on decades of sourcing experience, but also access to more than 650 price points, daily alerts, and the chance to tap monthly price forecasts for more than 10 specific metals.

Learn more about being a MetalMiner member.

Ok, it was two more things…

We welcomed two new MetalMiner team members this quarter!  Jeff Yoders joined us as assistant editor, and Kyle Fitzsimmons came on as marketing manager. Some shining examples of these gentlemen’s handiwork:

Happy Memorial Day!

Taras Berezowksy is off today, so I will be your substitute guide for another drama-filled week in commodity-traded metals! A lot happened. A nasty rebar dispute threatened a 20+year chummy relationship. The deadline for conflict minerals compliance looms like the Sword of Damocles over procrastinators like me. Fracking in China could save the world and I went to a 3D design and construction conference.

FREE Download: The Monthly MMI® Report – price trends for 10 metal markets.

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I believe I outdid myself with stretching a lame pun way too far with that headline (trying to tap the “Gimme a break, gimme a break, break me off a piece of that Kit Kat bar” jingle used to hawk the Hershey Company’s confection).

But hey, it gave me an excuse to direct our collective attention to steel rebar and the break aluminum buyers need from a wild LME price/MW premium situation. Let’s start with the latter:

1. LME Aluminum Cost Hardly Hedgable

metal-price-risk-L1

MetalMiner Executive Editor Lisa Reisman (who has been around the aluminum-trading block more than once) breaks down exactly why the system has, well, broken down for manufacturers trying to hedge their aluminum price risk. In this two-part series, Lisa proves why the historical model is dead and what the new approach to hedging may look like.

Don’t miss our upcoming webinar on May 1!

2. Mexican, Turkish Rebar Row

anti-dumping-prohibited-L1

The US Commerce Department preliminarily ruled that Mexico and Turkey dumped rebar into the US. Although this is early in the game for a final comedown, a particular mill in Mexico is vociferously crying foul over this ruling due to some interesting context involving the US and Mexico’s steel industries. Why? We’ll have an exclusive story for you on this next week.

FREE Download: The Monthly MMI® Report – price trends for 10 metal markets.

Read more

We’ve noticed a growing trend in many of the metal price forecasts currently on the market: they are either outdated in their approach with poor reliability, or are lengthy and leave the reader even more befuddled about when to purchase than when they started. Despite this, these forecasts are still very popular (because they are well-known…old?).

So we figured, if you can’t beat ‘em, join ‘em! And what better way to do that than to start sharing our forecasts in a comparable format? You like old? We’ve got old! Lo, we’ve translated our methodology and trade secrets into Old English for you.

Old English, a precursor to the Modern English language, was spoken between the 5th and 12th century. It is now a dead language only spoken by historians, professors and other members of the intelligentsia (or weird nerds that happen to work at MetalMiner). Thus, this format is undoubtedly just as relevant and simplistic as the other reports you’ve tried reading and translating:

Lo! Gōde foæÞeling! Mīnra lēofostra frēonda!
Lo! Good nobleman! My dearest friends!

Miċelu forecast weorc ofer eorÞan. Þæt ēower fela ġe-seah—helle witu.
Many forecast works over the earth. Many of you saw that (them)—hell’s torments.

Swā moniġe bēoÞ men ofer eorÞan, swā bēoÞ mōd-ġeÞoncas.
[There] are as many men over the earth, as [there] are thoughts.

MetalMiner ġe-hyrde hēah-gnornunge Þæra, beseah for forecast sceal
MetalMiner heard the deep groaning, searched for (looked about for) forecast warrior

“Hæle forecast sceal wīs-fæst ond wundor-liċ, glēaw in ġe-hygdum,” Lisa, waldend Þone gōde, sæd
“A forecast warrior must [be] wise and strange (marvelous), keen in thought,” ” Lisa, the good ruler, said.

Þonne Đā oÞre æt-ēowdon hwī hīe đær bēon ne mihton (MetalMiner), Þāra ān hēt Raul. Hē wæs a cūđ and mære forecast sceal.
While the others showed why they could not be there (MetalMiner), one of them was called Raul. He was a widely known and famous forecast warrior.

Hī ġe-lyfdon Þæt Raul mihte miċċlum him fultumian on Þām ġe-feohte, for Þām Þe he ġe-feohte lufode.
They believed that Raul was able to help them greatly in battle, for he fought willingly.

“Sē leornađ Þā gōde lāre,” Lisa, waldend Þone gōde, sæd.
“He learns the good teaching,” Lisa, the good ruler, said.

Nū is sē dæġ cumen, cum nū mid us
Now the day has come, come now with us

Saed Þu, “Þu mē hæfst ā-frēfredne. Wē lufiaÞ Þā
MetalMiner forecast”
Say you, “You have comforted me. We love the MetalMiner forecast.”

Wé saed, “Brūc, Þenden Þū mote, Þú bodian maniġra mēda!”
We say, “Enjoy, as long as you want, report much reward!”

Should you be interested in seeing one of the simple, reliable forecasts that we originally created, take a look at “Forecasting” in our main menu above! We currently have standardized forecasts for: aluminum, copper, nickel, lead, zinc, tin and steel (including HRC, CRC, plate and HDG).

My favorite weekend show when I was growing up had nothing to do with George Stephanapolous, Cookie Roberts, or whoever wasted space on the cable airwaves.

It was actually the McLaughlin Group.

That Dana Carvey parody is not far from reality. Watching John McLaughlin excoriate not only the public political figures trending that particular week, but especially his poor co-hosts, cracked me up.

So, until I can host my own personal McLaughlin Group-type show (perhaps we’ll incorporate that concept into some videos this year), this roundup will just have to do.

Steel Week 2014!

Well, unofficially, anyway. We featured some good coverage on finished, scrap and electrical steels this past week, including a technical outlook at this year’s markets. If you missed ’em:

Metallic Ore Kibosh

No, not a hot new band, but one of the biggest stories of a young 2014 – what the heck is going to happen to the markets once Indonesia kiboshes those exports?

From A to Zinc

Alright, that one was lazy. But this post sure wasn’t – it was our Most-Read Article of the week:

Happy weekend, MetalMiner readers – and don’t forget to tune into the McLaughlin Group. WRONG!

metal price forecasting

MetalMiner has been busy in 2013, creating viable short-term metal price forecasting capability for several forms of steel, aluminum, copper and nickel.

Get more info and a sample forecast here.

Enjoy the de Frutos of our labor – here are the best posts from the year:

1. Steel Price Forecast for 2013? Watch Out For Overcapacity

…“Just because capacity utilization is up doesn’t mean the market wants it,” Timna Tanners said [at the Platts Steel Markets North America Conference]. That hearkens back to our steel price index report on Jan. 9, when MetalMiner’s Lisa Reisman said, “we still face a situation of over-supply coming from markets such as China, which will continue to put pressure on steel prices.”

Joe Anton from IHS Global Insights agrees. In response to a MetalMiner question on what the US supply/overcapacity situation looks like, he said that if we were operating in a vacuum, the US could eat up current production rather handily based on current demand; but as long as we continue to import steel from China and elsewhere, this won’t happen…

2. Why Google Fails For Accurate Short-Term Metal Price Forecasts

…Have you ever gone to Google to look for opinions of where prices might go for a particular material, component, or assembly to better time a purchase order? Have you ever placed a forward buy because you thought prices might increase in the next weeks or months – but then after executing a forward buy, prices went the opposite direction?

It’s because of those types of risks that manufacturing companies typically seek two types of price forecasts: long-term forecasts and short-term forecasts. Long-term forecasts tend to help companies during the annual budgeting process, or when negotiating longer-term sales contracts with key customers. Short-term forecasts help companies with the tactical buying needed to meet actual customer demand. What are the key differences between the two when it comes to creating accurate metal price forecasts?…

3. Case Study: Aluminum Price Forecasting a Key Tool For Cost Savings

…Let’s return to our example of a company that typically buys on the spot market, but holds fixed the value-add conversion cost. We’ll say the company purchases 500,000 pounds of aluminum per month (which makes it a relatively substantial buyer).

First, let’s choose a random period of time (we chose Nov. 1, 2010 to Dec. 31, 2010) to analyze what this company might have spent on aluminum if it had a short-term (eight-week) forecast…

4. Copper, Nickel Buyers: What a Technical Price Analysis Tells You

…From a technical analysis viewpoint, looking at the overall picture, copper and nickel prices will likely remain below certain levels. These resistance levels represent price levels where selling pressure overcomes buying pressure. Short-term corrections happen during major trend periods. This means that we can see a short upward trend inside a major downward trend and vice versa…

Don’t forget your sample forecast!

And if you’re into some current metal price analysis, here’s our latest report.

newspaper boxes in snow

2013 has been an interesting year, and we’ve covered a lot of ground – in addition to our core metals market coverage in steel, stainless, non-ferrous, rare earths and other sectors, we try to voice our expertise and opinion on OEM supply chains and controversial trends.

Sometimes they are one and the same, as our top two stories of 2013 attest.

1. Where Boeing Went Wrong With Its 787 Dreamliner

As Lisa Reisman, MetalMiner editor, commented within the story:

“Many will criticize the outsourcing process and ask whether the nature of the relationships ought to change, but to me, the issue appears more fundamental – Boeing has a product development process that has failed to deliver a problem-free safe plane, outsourced or not. Fix the product development process and you fix the company.” 

The story bred some good comments:

  • “From a procurement perspective, this is a company that for 14 years has been slowly, methodically reinventing the way complex extended supply chains are monitored and managed. While far from perfect, I can’t think of a company that has done a better job putting in place the systems and processes to monitor and managing each node in the supply chain. For example, Boeing buys mountains of titanium and aluminum to ensure that raw materials are never the reason a part is late. How many aircraft manufactures can say the same? This was a blip, undoubtedly an expensive and embarrassing one, but a blip nonetheless.”
  • “The aircraft manufacturers have tried to emulate the success of Toyota using a tiered sourcing strategy. The difference is building an aircraft that contains millions of parts is different to manufacturing an automobile…YES, product development is an issue, but the larger overarching issue is the complexity added to the supply chain from outsourcing. There is no visibility of the supply chain, cultural differences, quality issues and loss of long term intellectual property as a result. They have not effectively managed the risk management associated with additional complexity.”

2. Is Thorium the Fuel of the Future?

Stuart Burns wrote:

“In the US, Oak Ridge National Laboratory in Tennessee built a thorium reactor in the 1960s. Apparently the Nixon Administration shelved it because the Pentagon needed plutonium produced as a by-product from uranium reactors to build nuclear bombs. The imperatives of the Cold War prevailed.

And that has not been the only hurdle blocking Western development of thorium as a fuel source; entrenched interests in the form of the established nuclear industry have lobbied against development funds for thorium reactors. A decade ago, a parallel project by Nobel laureate Carlo Rubbia at CERN (European Organization for Nuclear Research) was apparently denied funds from Brussels after France’s nuclear industry killed proposals for research support. 

So what’s all the fuss about? Why are the Chinese pouring so much money into thorium power generation research and what are they hoping to achieve?”

Turns out the fuss is that people are very fervently for, or opposed, to thorium as a fuel source and the viability of thorium reactors. (The actual No. 2 best-read post of 2013 is Part Two of this series, titled “Cons of Thorium Reactors Shouldn’t Stop Future Development,” which spurred comments such as these:

  • “I am terrifically happy to see this topic being covered in a trade magazine site. People whom I’ve told about thorium reactors look at me like I am talking about magic wands and fairy dust. When a new technology starts getting covered in industry rags, well, folks it is real.”
  • “We have millions of tons of Uranium-238 sitting around in government warehouses, leftover from separation processing. We have trillions of tons in mines. U-238 is massively abundant and if we used it (in a breeder reactor) we have enough in stock, in warehouses, to power the world for 1000 years. U-235 is the only type of Uranium that is in short supply. These kinds of mistakes are what make the Thorium “advocacy” movement so unbelievable.”

Expect more controversial coverage in 2014!

~MetalMiner Editors

steel-bridge

Going down the Best of MetalMiner in Steel route for 2013…

1. Ferrous Scrap Metal Price Outlook for 2013 – As Long as GDP Grows…

Timna Tanners, a smart and savvy metals/mining analyst for Bank of America Merrill Lynch (and officially my new crush in the metals world), presented the viewpoint that “when you’re in an oversupplied market…the scrap price will set the steel price, and the margin should remain fairly fixed; this is not a permanent situation, but for now it’s important.”

Tanners also put her (and her firm’s) thumb in the air – which, according to her bio, has a killer track record – and came down with a long-term iron ore price forecast at around $95 per ton.

As far as raw material alternatives go, 20 million tons of DRI [direct-reduced iron] by the end of the decade in the US would have a massive impact on cost structure, according to Tanners. “It’s exciting, but change is disruptive,” she said…

2. ArcelorMittal Says Bye to CRU as Monthly Steel Price Index Slipping

…The world’s largest steel producer, ArcelorMittal, will no longer honor CRU + discounted contracts, claiming the practice has led to reduced profits and market manipulation. 

We wonder if the distinction between CRU + discounts carries over to how companies use CRU from a long-term contracting perspective. 

On the face of it, our own analysis suggests CRU pricing remains an accurate indicator of actual prices paid in the market, but the notion of discounting to CRU seems out of place with the exception of large-volume buyers…

3. Costa Concordia: Biggest Scrap Salvage Operation Ever

…30,000 tons of steel have been used in the operation – more than four times the weight in the Eiffel Tower. Twenty-one pillars over 5 feet in diameter were driven 30 feet into the granite seabed to support the righted ship and brace the 56 chains (each 190 feet long and weighing 26 tons) used to pull the vessel slowly upright through 65 degrees. 

Two blister tanks installed at the bow of the wreck provided buoyancy, measuring 75 feet long and 66 feet high – that structure alone weighed 1,700 metric tons. Meanwhile, a flotilla of 22 vessels and eight barges, plus more than 500 people of 26 nationalities worked on the joint US-Italian led project. 

Fortunately, much of the diesel fuel had been pumped off months ago, but the stores still held a considerable quantity of perishable goods and liquids that would have caused environmental problems if the vessel was left indefinitely or if it had broken up on the reef.

The scrap value will be a fraction of the salvage costs to date and in practice may not even cover the cost of breaking the vessel up, but at least the eyesore on the Tuscan coast will soon be gone and the Italians can be proud of an immensely difficult salvage job well done…

RELATED: Top 3 MetalMiner Stories of 2013

Through 2013, amidst the highs and lows of the aluminum market and the ensuing LME warehouse scandal, our most-viewed aluminum-related piece was this killer infographic:

LME warehouse scheme infographic

But of course, there were some killer stories as well:

1. How Aluminum Producers Profit from the LME Warehousing Scheme

…Aluminum buying organizations may wish to note the distinction between primary ingot producers (Alcoa, Century, Noranda and Ormet, etc.) and semi-fabricated product producers (Novelis, Sapa Group, and the downstream operations of Alcoa). Semi-fabricated product producers, particularly those that remain non-integrated, purchase ingot from the primary producers and, like their customers, also face long load-out times and higher premiums.

In other words, the semi-fab producers and downstream supply chains all sit in the same boat. However, the semi-fab producers no longer rely upon the LME warehouse system for metal (they purchase much of their requirements under long-term contracts directly with producers and traders)…

2. How Boeing Buys Aluminum: Metal Prices and Raw Material Cost

…Although Jeff did not disclose to us exactly how much money Boeing spends per year on their aluminum buy, or what some of the biggest metal cost components are for Boeing in general, citing confidentiality, he did shed some light on how Boeing manages their metal spend.

MetalMiner: How do you tend to buy your aluminum (through which channels, how do you hedge your aluminum spend, etc.)?

Jeff Carpenter: Purchase of aluminum for our supply chain is handled directly by Boeing through our aggregator, TMX. This enables us to reduce costs, control quality and ensure inventory to meet our increasing production schedules. To further this strategy, we have recently begun a new program to revert scrap aluminum and return it to our supply chain…

3. Aluminum Price Outlook: Oversupply Breaking the Bank for Primary Producers

…The curse and the cure could be the early end of taper relief and, perversely, a rise in interest rates. If rates rise significantly enough to choke off the stock-and-finance trade, metal availability will increase, reducing physical delivery premiums.

Currently around 25% of primary mills are believed to be losing money; if prices collapse further, that could rise as high as 50%, in which case mass closures or idling of capacity will result and ultimately so will a recovery in prices.

Which producers will emerge still in business, of course, is another question. Either way, primary aluminum production is not an enviable business to be in at the moment…

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