Aluminum

We look at our in-bound mail and gauge inbound phone calls to determine what MetalMiner readers appear most concerned about when it comes to metals. This week, we heard a lot from aluminum buyers concerned about rising prices. Emails like this one from a large consumer products buyer, “Any idea what’s going on with aluminum? It’s going crazy right now, certainly say it all. And recently we heard something along opposite lines, “what’s going on with zinc because I’m wondering if I should switch some die castings over to aluminum again. So without further adieu, we bring you a recap of recent non-ferrous metals market insight:

US Aluminum Market Premiums Set to Increase in 2010

Copper Which Way Next?

Zinc Capacity Coming on Too Fast?

Should MetalMiner Offer Metal Market Webinars?

Well, we had to get a plug in and we heard from many of you with a resounding yes. Non-ferrous metal webinars (the non paying varietal) are on the agenda for 2009. We’ll let you know when those will be offered. We will cover the full range of non-ferrous metals including tin, nickel, lead, zinc, copper and aluminum as part of our 2009 price prediction series during the first few weeks in January. We will also assess how we did in 2009.

–Lisa Reisman

Aluminum Corporation of China (Chinalco), the country’s largest alumina and primary aluminum producer has not let the grass grow under its feet since losing the chance to increase its stake in Rio Tinto Alcan earlier this year. In the first ten months of the year, Chinalco added holdings of 53 million tons of bauxite reserves and 3 million tons of copper reserves. Chinalco’s primary alumina and aluminum capacity has gradually come back on stream as domestic demand has increased; the company is now running at 90% of alumina and 88% of aluminum capacity according to a report in Reuters. This is a dramatic improvement from August when the company stated it was operating just 67% of total alumina capacity and 83% of total primary aluminum capacity. It has about 11 million tons of annual alumina capacity and 4 million tons of primary aluminum capacity.

But Chinaclo is about a lot more than aluminum. According to the Peruvian Times Chinalco is to invest $2.15 bn in developing the Toromocho open pit copper mine in Peru’s central highlands, near Morococha in Junin. Production is set at 200,000 tons of copper per annum and is scheduled to begin in early 2012. Apparently Chinalco has aspirations for Toromocho to be the most advanced copper mine in Chile.

Nor are bridges with Rio completely burned, Rio themselves said just last week that they are keen to develop projects with Chinalco and the two firms have been in recent contact. In many ways the surprise during this recession is that Chinese companies like Chinalco have not been more acquisitive snapping up assets at discounted prices. The purchase of a sizable chunk of Rio’s assets would have been a major coup for Chinalco and explains their annoyance at being dumped when a better deal from BHP and Rio’s shareholders came along. But the failure is an example of a much bigger problem Chinese companies have had in buying into existing businesses. They have done moderately well investing in very high risk African green field sites but much less well trying to buy western assets on the cheap in that respect it has not been a good recession for China.

–Stuart Burns

Despite semis demand being down some 30% from this time last year, the North American aluminum market is comparatively tight for material, particularly for ingot, scrap and flat rolled semis. On the primary side, smelters with higher cost structures have been idled and the low dollar has encouraged the flow of metal from coastal smelters overseas to take advantage of higher premiums in Europe and particularly in Asia. Premiums for primary metal in Japan are the highest since 2006 and have doubled since the early summer of this year. Although Russia’s Rusal has been shipping metal to Glencore to be tied up in long-term financing deals, there has been less metal flowing to the US and less available for spot sale in Europe. Consequently, premiums have increased significantly since the summer helping to support the LME price.

Meanwhile the semi’s market, which crashed in both demand and price at the end of last year forced the idling of rolling facilities in a desperate attempt to match supply to reduced demand. Demand has since gradually picked up but producers have been slow to bring back idled capacity until prices begin to move up. As a result, we are currently in that stage of a recovery where demand is very slowly increasing but supply is not, creating the potential for a squeeze on prices in the New Year. Mills are sold out for this year so pricing now is for the first quarter of 2010 and for the time being mills appear largely to be passing through ingot increases. But if demand continues to uptick gradually each month, there will come a time soon when they will look to increase premiums again following October’s increase. So far the distributors, although carrying a little more stock than during the summer have not entered into a re-stocking program of any note, preferring like the producers to wait and see how demand develops.

Residential and commercial construction are flat, automotive is up a little and trucks should begin to show some growth early next year. The risks of a double dip appear to be receding. The recent drop in unemployment levels, though slight is an encouraging sign. If buyers are working on a value add premium over P1020 or Mid West Ingot then we would suggest fixing second quarter premiums at the same level as the first may not be a bad idea. The next few weeks will be very quiet now. Many firms appear to be going into the holiday shut-down early, not actually closing but postponing decisions and activity to next year. Come January we will have a clearer picture of how the first half of 2010 is likely to unfold and our expectation is flat rolled producers are going to go for premium increases before they bring anymore capacity back on line.

Did you know MetalMiner IndX(TM) publishes daily aluminum scrap prices in China? Click here to use this free application.

–Stuart Burns

Calls for a halt to the dollar’s slide by foreign owners of US assets such as the Chinese and fellow trading blocks like the EU and Japan that are struggling to compete with a weak dollar have been joined by a supporter from an unexpected quarter  recently.

Klaus Kleinfeld, chief executive of America’s Alcoa is reported in the FT as saying the aluminum producer took a $57m hit in the third quarter due to the weakening dollar and Levi Straus took a $16m currency hit in the second quarter. While these and other companies like Yum Brands and Biomet reported in USA Today don’t go into much detail about exactly where the losses arose, when corporations are manufacturing in so many locations, Alcoa operates in 31 different countries, local currency movements impact the bottom line when the costs are rolled back in the dollar denominated corporate accounts.

Most of the cost increases are going to come from those countries that have strong currencies, often boosted by a heavy reliance in commodities such as Brazil, Australia, South Africa, etc. Manufacturing costs are incurred locally but the products manufactured and often exported are usually sold in US dollars.

Some US corporations like Levi Straus use currency hedges according to Roger Fleischmann, Levi’s Treasurer. If the market moves the wrong way, profits are preserved but the hedge shows up as a currency loss on the books.

Timing has been another problem this year. As subsidiary costs and sales are rolled up into the corporate books they are at the mercy of timing, come in at the right time and the exchange rates give a kind number on the costs, come in at the wrong time and they are valued as a loss. The third quarter hit many firms in that fashion.

Finally, firms that rely heavily on imports, either of components or raw materials can also suffer as the dollar weakens. What’s good for the exporter is bad for the importer, and on balance the US is a net importer.

–Stuart Burns

The announcement that Boeing will be offering increased quantities of aluminum scrap for auction this quarter may indicate an increase in activity at the Seattle plane maker and will certainly be a welcome increase in supply to a market in need of more top quality segregated scrap. Lack of plentiful good quality scrap has been one contributing factor in billet prices, and it doesn’t come much better than traceable segregated scrap from the aerospace industry. According to Metal Bulletin, Boeing will be offering an additional 380,000 lbs across all grades — equivalent to about an 18% increase.  As welcome as this scrap generation from Boeing will be, it is set to fall in the years ahead as production of the Dreamliner takes over from older models. The 787 has a far higher percentage of carbon fiber in its construction.

–Stuart Burns

There was a time when if the price of a metal doubled in a year it would be the stuff of headlines. Not only trade journals, but newspapers and even TV channels would post features on the dramatic price rise and the ensuing calamity that was likely to follow ” whether it be a crash in the price or consumers being forced out of business. Nowadays we appear hardened to trebling or even quadrupling of prices in a single year such is the bull market that has prevailed this decade. So as the price of manganese has doubled  in the  last 12 months maybe we can be forgiven for not having taken too much notice. Read more

There is an interesting debate going on in the aluminum world that is quite probably being mirrored  across other metals categories, namely – which way  will the price for semi finished metals go the balance of this year? Aluminum semis prices are driven largely by the ingot price but also by the premium mills can charge for the particular product ” plate, bar, flat rolled, sections, foil, etc.

First, the ingot price. Read more

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!

–Lisa Reisman

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

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