Copper

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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If you caught the first part of our series on green innovations in the metals industry, you’ll know that the MetalMiner staff is excited about following the growth and development of green metals. We love hearing about eco-friendly improvements and new practices in the metals industry. The men and women behind GreenAlloys share this excitement for going green, and they decided to take a step to make metals recycling and low-lead products more prominent in our society. Earlier this week, I had the opportunity to talk to Al Barbour, president and CEO of Concast Metals Products Co., the company responsible for GreenAlloys. If you want to be a progressive company or manufacturer today, you need to look at what the end customer wants, he says of his eco-friendly metals company, touted as the next generation of environmentally-friendly alloys and materials. The view of society is moving in this direction, this green direction. This is a trend that will remain long-term. Read more

I can’t say that I am shocked by these survey results which were just released over the weekend by buying consortium Prime Advantage. According to the press release, of the 100 member companies that responded to the survey, 46% said that raw materials, “which include stainless steel, nickel, copper and other metals and plastics were a major concern in 2008.” Energy costs came second with 17.5% citing this as the biggest cost pressure.

Given the past two years, it is no surprise that raw material price pressures remain top of mind for purchasing professionals and owners of small businesses. What is ironic is that 66% of respondents “plan significant capital improvements in 2008, including equipment upgrades such as press brakes, turret punch presses, plus equipment for laser cutting, robotic welding and stamping”. On top of that, 59% of respondents expect a revenue boost in 2008.

But aren’t we in a recession? Well, maybe but not all manufacturing has been feeling the pinch. A colleague of mine who is a turnaround professional recently told me that he has seen manufacturing companies whom he thought would never export again, do more of that of late than in the last 10 years combined! Just last week Caterpillar (my favorite economic bell-weather) reported a 20% jump in exports of machinery and equipment in 2007, according to this Crain’s Chicago article. So it’s no wonder that we see companies worry about raw material pricing yet continue to make capital investments.

The state of the US dollar is undoubtedly a boon to many US manufacturers as their exports are now much more competitive. Foreign competition as my partner Stuart rightly points out, is down at the moment but what happens when, “they [US manufacturers] will once again face their normal level of foreign competition… I wonder how bullish they would be then?” Good point but if you are of the school of thought that the dollar had been “wrongly” priced previously due to certain “bubble” industry sectors and the dollar continues to trade as it has been for awhile, we’ll continue to see strong exports. Of course what goes up also goes down and vice versa.

But one thing we can bank on, it appears certain that raw material pricing will remain volatile and a concern for manufacturers.

Editor’s Note: If you are concerned about raw material volatility, take our free  MetalSaver quiz  for cost savings ideas. –Lisa Reisman

The brass producers and distributors are under pressure, and I don’t just mean water pressure [pun intended]. Copper and brass shipments in the USA have been down since the summer of 2007 due to continued cut backs in new housing construction starts. The housing industry is by far the largest end user of copper and brass products at around 40% of total consumption and finds it way into faucets and valves, brass fittings, HVAC or electrical wiring and connectors. The average new US single family home uses some 400 pounds of various brass and copper products. And, if the public begins to reduce spending on home remodels, there will be an even greater affect on the brass market because the ratio of sales for remodelling to new build is 3 to 1. According to Forbes, the news has not been pretty for building products manufacturer Masco and Home Depot Read more

Many companies look on scrap as a problem to dispose of when in fact it could be viewed as a source of incremental profit and an opportunity to achieve some measure of natural hedging against metal price volatility. Ferrous and non ferrous scrap is obviously a product of any manufacturing process that as a business one seeks to minimize. Any material that is not being transformed into a saleable finished product represents a cost that the business unit has to incur. However unlike virtually all other direct material inputs to a business, scrap has the ability to create a separate revenue stream and as such it deserves its own strategy. Read more

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

Hot Metals: The New Crime

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Non-ferrous Metals

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!

–Lisa Reisman

A wise colleague once told me the first time you hear something, it’s a data point. The second time you hear it, it’s a line and the third time you hear it, it’s a trend. Said differently, the demand for the world’s precious raw materials is going to increase and so too will the prices.

Though we stand by our 2008 metals predictions (including copper) – the fact remains the underlying data may be pointing to a very different financial picture long term. Consider the following:

  • Tata Motors just unveiled their $2500 car for the Indian (and other) markets
  • Examining per capita “consumption rates” as recently published in the The New York Times by noted professor and author Jared Diamond, “The estimated one billion people who live in developed countries have a relative per capita consumption rate of 32. Most of the world’s other 5.5 billion people constitute the developing world, with relative per capita consumption rates below 32, mostly down toward 1.” But, “China’s catching up alone would roughly double world consumption rates. Oil consumption would increase by 106 percent, for instance, and world metal consumption by 94 percent.” And we haven’t even talked about India or any other developing country.
  • According to a March 2007 article quoting Sanford C. Bernstein, an investment management firm, a hybrid car, “costs US$4,500 to $6,000 more to build than a conventional vehicle.” Some of this cost is due to the added metal content for a hybrid vs a regular car. For example, there is more copper used because of the electrical motor and the larger the motor, the more copper required. In addition, more nickel is also used in hybrids than in conventional cars. And, according to this same article, the automotive industry accounts for 5% of global copper usage.

And the data goes on and on…though the metal content of cars has historically been dropping as a % of the overall content of a car (and electronics has risen), metals consumption overall will increase exponentially as more of the lesser developed world purchases cars.

Of course all of these data points examine the demand side of the equation. We’ll come back to the supply side in another post. But consider this odd trade agreement as reported in The New York Times between Chile and China hint: Mandarin lessons were part of the accord. China is busy brokering long term raw material, in this case copper, supply arrangements. The long term writing may be on the wall.

–Lisa Reisman

Compounding changes to the China import/export tax and VAT rebate schemes in July of 2007, additional changes were announced on December 14 for implementation on January 1. With help from Jason Zhang, our metals expert in China, we review these changes and offer some early insight into the likely effects.

Broadly, there are three different changes that have been made or are taking place that will affect the markets going forward. These changes specifically include: import duties, changes in export duties and changes in the RMB/USD exchange rate. Read more

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:

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