Nothing seems to rattle the tail of a manufacturing organization quite like being asked to participate in a reverse auction. But it is our contention that reverse auctions within the manufacturing sector are way down according to a comment in this article which appeared over on Spend Matters a little while ago. There are several comments in the post worth reading. But I think in context of metals raw materials, semi-finished materials and possibly further worked products containing metals, auctions are down and possibly out but not necessarily for the reasons you might suspect. Read more
The Institute of Supply Management (ISM) released it’s monthly report last week on the state of the economy for the month of March. Instead of reporting the results which are widely available you can read them here, we thought we would call out some of the more pertinent metals related data. The ISM findings in general showed contraction in the manufacturing sector (48.6 reading). 50 indicates growth. But the data had improved over February’s 48.3 reading.
Metals, which according to the findings, increased in price include: aluminum, aluminum extrusions, copper, copper laden products and steel. Other noteworthy indicators in the report include imports. In the case of metals, the industries that reported decreases during March are: primary metals, fabricated metal products, among others some of which include metals as finished products. Export orders increased for the following: electrical equipment, appliances and components; paper products; primary metals; miscellaneous manufacturing; food, beverage and tobacco products; computer and electronic products; transportation equipment; chemical products; and machinery.
Still significantly, many industries face rising prices and metals are no exception. ISM findings indicate prices are still on the rise for primary metals and fabricated metals. Specific feedback from survey participants related to the metals industry include the following:
- “Automotive demand continues to decline.” (Fabricated Metal Products)
- “Business is still cautiously optimistic.” (Machinery)
- “European business continues robust.” (Primary Metals)
Given some of the latest manufacturing news, we wanted to introduce you to a trusted and respected colleague of ours that works in the field of lean manufacturing and purchasing cost control, Cadent Resources. In an effort to share cost reduction ideas amongst the manufacturing community we are looking for our readers to share their practices on how to control inventory and streamline purchasing practices. After you have shared your idea, come back in May and vote for what you think are the “best” or most practical ideas. (We’ll do a follow-up post in May)
Suggestions should be 100 words or less and must contain an explanation of what action should be taken and why. You can post your suggestions as a comment on our Speed of Demand and Supply Blog at “What are you Doing Differently with Inventory and Purchasing Today?” Don’t keep this contest to yourself – share it with your peers to get them to enter an idea or vote for yours.
Suggestions will be accepted until the end of April with voting commencing on May 1st and ending on May 16th. A minimum of 10 suggestions must be entered for voting and prize eligibility. Your suggestions will be posted on the Cadent Resources Wiki and then voted on. The suggestion receiving the most votes will win a $150 gas card.
Thank you in advance for your participation!
It is hard to believe that we are coming up on the close of the first quarter of 2008. What a quarter it has been! We thought it would be fun to review our predictions from the beginning of the year and grade ourselves. At the same time, we will chime in with what we believe is in store for metals buyers and traders in Q2 and beyond. In case you missed our original predictions, you can find them here. Read more
There has been an awful lot of coverage, both here and in more famous columns (you notice I didn’t say better just more famous) about commodity price increases. You can’t open a newspaper or turn on the TV without seeing yet another record high price for precious metals, or agricultural products, or steel. But we have not reported so regularly on the effect these price increases are having so it was interesting to come across various sources discussing the impact on the US automotive industry.
The struggling big three automakers are being hit by about $350 raw material cost increases per vehicle compared to the average for 2007 and $421 per vehicle compared to February of last year according to Lehman Brothers. Read more
While metals such as gold and copper have recently hit record highs, the future outlook is uncertain — particularly since oil and the global economy are adding to the volatility of the metals market.
Always considered the safe haven of metals, gold reached a record $992.95 an ounce earlier this week. Soon, it could even hit $1,000 an ounce. Who is to say, however, if it’s a decent time to jump into a deepening pool of gold wealth? This is a terrific time to sell old gold jewelry and make some bang for your bling, as Lisa reported in a past entry, but the investment arena isn’t as certain. With prices that jumped 52 percent since the end of 2006, the oft-promising metal could be a high risk at this point. Then again, the dollar could be pushing gold even higher in value next week, when the U.S. jobs report, which is expected to be weak, is released against the backdrop of the U.S. dollar dropping further in value against the Euro.
In addition to the weak dollar, fresh highs for oil look set to entice further anti-recessionary/inflationary hedging towards gold and will ultimately push the metals higher, Bullion Desk analyst James Moore explained in a recent Forbes article.
Sorry for the rhyming. I’m in one of those moods…
Buried in the bowels of it’s Sunday edition, the Wall Street Journal had an article on how Rio Tinto Alcan became the subject of an anti-trust investigation filed by the European Commission. According to the article, the EC “charges Alcan with having abused its dominant position by ‘tying its dominant aluminum smelting technology with handling equipment sold by Alcan’s subsidiary ECL.’ ” It’s a major accusation as the punishment for Alcan, if found guilty, could be 10% of company revenues. The EC believes Rio Tinto Alcan has acted uncompetitively because the concern is that as the biggest aluminum producer in the world, Alcan and as owner of ECL, a major producer of equipment used in the aluminum industry, innovation would be stifled. Specifically, the EC has accused Rio Tinto Alcan of monopolistic behavior.
Bloomberg had a more in depth analysis pointing to the contracts Alcan has with several customers to share aluminum smelting technology. In the contracts, Alcan prevents companies from purchasing pot tending assemblies from other manufacturers besides ECL, its wholly owned subsidiary.
A couple of weeks ago we wrote about the correlation between high commodity (in this case metals) prices and the number of M&A transactions within the sector. Let’s hope the trust busters will be watching these transactions closely becauses the risk is only going to increase as metals industries continue to consolidate.
There’s an age-old adage that one thing is constant ” and it’s change. No, I’m not leading into politics and the 2008 presidential election in the States. Rather, let’s think beyond Super Tuesday and look to the metals industry. With all of the metals industry’s longstanding practices, are there really ways for metals and metals-related processes and purchases to become eco-friendly? Rest easy, because the answer is a resounding yes. In fact, the metals industry is the vibrant host to several new ecologically aware innovations, and they might be the key to sustainable growth and development. Read more
The recent power problems in China, largely caused by bad weather reported in our recent article, comes at the same time as widespread power problems in South Africa have affected Ferro-Chrome, coal and precious metal mining.
So much for mining companies, but what of the manufacturers? It is estimated that the Chinese power problems have idled up to 10% of the country’s steel production and several aluminum pot-lines. Power failures are particularly damaging to aluminum smelters because the molten aluminum rapidly solidifies in the cell, taking months to get the cell operating again at a very high cost. So if power is likely to be disrupted, smelters usually voluntarily take pots out of operation to reduce the demands on the grid and ensure reliable supply for those cells left in operation. That is what is happening at Southern Africa’s three smelters, Bayside 190kt, Hillside 709kt and Mozambique’s Mozal 564kt following warnings from South Africa’s power generator Eskom that due to heavy rains they can’t guarantee power supply for the next 4 weeks. We have heard that due to under investment there will be intermittent cuts for the next 4 to 7 years! In addition, expansion plans at Mozal and Hillside and the proposed new Coega smelter of 700kt are all in doubt according to Standard Bank, Leon Westgate, Base Metals Flashnote, 29 Jan 2008. Read more
A couple of years ago, Stuart told me about a few metals related thefts in his area including his own 20 ton aluminum container worth about $60,000 (at the time). Stuart maintains an ownership stake in a specialist stocking company in the UK. Then, just two weeks later, a truckload of copper worth $100,000 was stolen just outside his warehouse. They never caught the perpetrator and the police could not be bothered. I remembered thinking how clever it must be to steal semi-finished or raw metal materials. Unlike stealing the same dollar amount from a bank, a metal theft is typically not a felony (unless of course the goods are transported across state lines). So in a sense, smart criminals may find such materials well, crime-worthy, if you will. Of course they would have to do a little work to realize the fruits of their labor. I would imagine it would be hard to come up with mill test certificates. But, it’s relatively easy to create a packing list, invoice etc. One would only need to pull and test a few samples to determine the alloy, chemical composition etc to pitch it to the local scrap dealer. But I had taken Stuart’s story as a random act. Random and stand-a-lone. But given rising metals prices, dear Stuart is not the only victim of metal theft. Consider these examples:
- Newsweek recently reported that thieves were stealing catalytic converters (for the platinum content) from police impound lots.
- In Washington state, thieves stole bronze headstones from a cemetary .
- In a more outrageous example, two vans with five people carried off approximately $60,000 worth of lead from a UK concert hall roof.
- Continuing on the outrageous or not-what-you-would-think theme, I saw this headline…about thieves stealing brass water valves.
- Unfortunately for this fellow, who was electrocuted stealing copper from an abandoned building, he didn’t get to reap the rewards of his theft.
Our research indicates a few other interesting findings such as these crimes are not only occurring in the US. They are occurring all over the world. It is no longer just drug addicts that are committing the crimes for a quick buck. The primary buyers of these materials include scrap yards and scrap dealers (which may not appear as a surprise to anyone) Because there is such great demand for metals, scrap dealers, historically, have not questioned their sources of supply in terms of product origin.
The good news however, is that many local governments are looking at new regulations and laws to curb metals-related thefts. Some of the provisions include things like scrap dealers registering their business and keeping detailed records, sellers would need to show a photo ID and in some cases provide a thumbprint, age requirements for sellers and limitations on those that can sell scrap air conditioning parts made of copper (e.g. compressors).
The Scottish Business Crime Center has published a wonderful checklist of preventative measures any industrial products company can take. For those of you considering making your catalytic converters a little more secure, consider buying yourself a spot welder! Apparently, a little spot weld makes it trickier to rip them off!
In the face of a slowing US economy, a mixed position for the European economies and a still strong Asian market, it is a particularly tough call this year to judge where prices will go. Our call is the US will teeter on recession. Europe though restricted by high ECB interest rates will still enjoy some (if reduced) growth providing the Euro/US Dollar exchange rate does not strangle exports. Asia in general and China in particular are still enjoying robust growth. China may well drop from the double digit growth of the last 5 years to high single digit figures but that is still a very significant driver for the world economy and particularly the world metal markets.
So here are the 2008 predictions: