Aluminum

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

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.

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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.

–Lisa Reisman

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