Steel

Posco revealed several bits of news about two weeks ago which steel buyers everywhere may find of interest. The first piece of news involves its own estimates of steel demand increasing by 10% this year. That may not strike anyone as noteworthy given the past year but nonetheless, it appears positive.   The second bit of news of interest for metal buying organizations involves the level of R&D spending by Posco. It intends to increase its research to sales ratio from 1.5% to 1.7% as well as continue cost cutting efforts. But perhaps the most interesting news involved its announcement to invest (and we have seen differing reports on the amount) either $6.02b or 3 trillion won of its $8.3b investment spending for acquisitions.

Since most of the M&A news that makes its rounds here in the States involves the domestic or global steel producers or Chinese firms who have acquired a variety of global interests, we have rarely, if ever reported on M&A activities of other Asian firms. According to this Reuters article, Posco intends to go after key raw material supplies including a 15% investment in an iron ore project in Australia along with capability to “expand wallet within existing customers by purchasing Thailand based Thainox (a stainless steel producer). In addition, Posco has also gone after key clients to add to its acquisitions, particularly those industries expected to grow considerably this year such as Daewoo Shipbuilding, Daewoo Engineering & Construction and Daewoo International with significant trading and energy development business as these businesses give Posco an “in to energy exploration and development.

Posco’s move buying into a new lithium producer PAL may send a strong signal as to where at least one steel producer sees not only improved demand but also new demand. Toyota and Posco have started to place their bets on the market for HEV’s and PHEV’s. These types of M&A activities also tell us much about how these firms view supply risk. Off-take agreements, direct investment, joint ventures and partnerships will likely only grow as some of these new technologies take root. Stay tuned.

–Lisa Reisman

METAL-PRICE-FORECASTS_011810_02

A revolutionary new process to punch holes in steel without leaving burrs and at lower cost than heavy presses is being developed by a group in Germany according to an article in the Economist magazine. The paper reported this week how Verena Kräusel and her colleagues at the Fraunhofer Institute for Machine Tools and Forming Technology in Chemnitz, Germany have found a way to use an EMP device to shape and punch holes through steel. This could transform manufacturing by doing away with the need to use large, heavy presses to make goods ranging from cars to washing machines. OK what’s an EMP device I hear you say, sounds like something developed for a doomsday battlefield scenario? Well you would be right in as much as one notorious  effect of  Electro Magnetic Pulses is to disable  an enemy’s computers, electronic control systems and telecommunications by delivering a blast of electromagnetic energy from an atomic bomb detonated at high altitude. But there is also a peaceful application where EMP devices are used in industry to shape soft metals like aluminum and copper.

The Fraunhofer Institute has taken this concept and raised it to another level by enhancing an existing electromagnetic forming machine. The article explains that such machines use a bank of capacitors to discharge a current rapidly through a coil. The coil converts the current into a powerful magnetic field. When the component to be worked is placed next to such a machine, the coil induces in it a corresponding field. Like poles repel, and the repulsion between the two fields is strong enough to make the metal distort. By strengthening the coil and speeding up the rate of discharge, Frau Kräusel and her team have increased the power of the machine so that it can punch through steel. The enhanced machine has an impact pressure of 3,500 atmospheres (51,450 lbs/sq in) enough to punch 1-2 diameter holes through the kind of steel used in the automotive industry for car bodies, around 0.040 thick. Tests by the institute have shown it works equally well on hardened and stainless steels.

The work is being sponsored by German industry heavyweights like Volkswagen who see the technique as having distinct advantages over the traditional heavy press route. Presses leave burrs when they punch through metals that have to undergo a subsequent dressing process. In addition, press dies are expensive and wear out requiring replacement. Lasers are an alternative to presses but take time to cut a hole, typically 1.4 seconds against the EMP device at 0.2 second. An EMP device leaves no burr, there is no die to wear out and although different size holes require different size coils once they are made, the coil never wears out. A blending of the technology’s ability to mold metals into forms and this new ability to punch shapes or holes opens the possibility of a CNC EMP machine that could both form and punch in combined operations reducing time and life cycle costs for manufacturers of metal components.

–Stuart Burns

From a short-term perspective, higher scrap prices can only mean one thing, higher steel prices. And generally speaking, we see rising scrap prices along with higher iron ore and coking coal prices as the primary drivers to higher steel prices. However, although demand looks better than it did during the first half of 2009, it remains tepid. According to a recent article from Recycling Today, ferrous scrap prices for the second month in a row, “took a sharp upward turn. After having bottomed in April 2009 according to the USGS, according to our own tracking and analysis, scrap prices have increased three months in a row.

But some of the increase in scrap prices may involve other factors than simply rising steel demand. Cold weather impacted inflows particularly here in the North but throughout much of the country during the first couple of weeks in January. Scrap supplies also remain tight because less demolition projects have taken place and when consumer demand for steel intensive white goods or automobiles remain depressed or down, consumers don’t hand over their old units that typically make their way into the scrap supply chain. Automotive demand has also remained somewhat flat. Nevertheless, prices have increased for most spot buyers to more than $300/ton, according to Recycling Today. Moreover, the national average rose to $387/ton.

Some consider exports the wild card of the scrap equation, according to the article. To give a sense of the size of scrap exports to the overall US market, we took a look at the most recent USGS Mineral Industry Survey and as of September 2009, the US exported 15.4m metric tons of a total 36.8m metric tons consumed by the domestic market or 42% of all scrap generated goes toward exports. The US did import 1.92m metric tons. If export orders decline, US producers will certainly put some price pressure on the scrap dealers for better pricing. We’d concur that export orders will help drive the scrap price equation in the short term. Now whether the mills will share any price drops with consumers should export orders falter, well, that’s a different story.

–Lisa Reisman

FORECASTED-STEEL-PRICES_011810_02

Hi everyone. I had no idea how much you all like quizzes! I’ll do them more often. Here’s another one…

The markets paused for thought when the Bank of China raised the requirement for big commercial banks to keep 16% of deposits at the central bank, up from 15.5% before. The impact was not so marked in China where the Shanghai Composite Index is off less than 1% this year but more in overseas markets which had been fooling themselves that China’s loose monetary stance would go on forever. As it is the monetary policy of last year is likely to drive consumer price inflation to 3% or more this year, the turnaround starting in October when it was at -0.5% to December which was at +0.6% according to the FT. Consumer demand, housing, foreign direct investment and bank lending are all still powering ahead. Raw material prices have doubled admittedly from low levels due to the financial crisis but they are still now back at what appear to be historically high levels. M1 money supply the narrow definition of money in circulation has gone stratospheric as this graph from the FT illustrates:

China M1 On a month-on-month annualized basis, the national property price index rose by 14% in December. Residential and commercial real estate prices rose at the fastest rate in 18 months in December, while foreign direct investment more than doubled from a year earlier according to another FT article. And still the banks are lending. The Rmb600bn of new loans in the first week of January was not far off the monthly average of Rmb800bn last year. The Bank of China has repeatedly rebuked any suggestion to raise the Renminbi exchange rate which would have the benefit of at least reducing raw material costs and easing some supply side inflationary pressure.

So the question appears to be not will inflation raise it’s head in China but how far and how fast. The OECD markets will also face the same problem but further down the road. Recovery has to pick up steam considerably before it will become an issue in Europe and the US but with so much capacity cut back in the west last year utilization levels are actually higher than one would expect for many materials. Steel for example is back to 70%+ and mill lead times are beginning to move out. That will result in gradually higher prices even if the long awaited re-stocking does not materialize in the short term.

–Stuart Burns

METAL-PRICE-FORECASTS_011810_02

I have to admit that I haven’t read one article on this whole Google showdown in China. I’m assuming we all agree it’s a showdown of sorts. But an article with a headline like this one “Why America and China Will Clash, just grabbed my attention. Whether one buys steel or aluminum, a zinc die-casting or a finished part from China, the relationship between the two countries forms the backbone of many of our posts (not to mention many of your businesses) and some of our behind-the-scenes research. You may have noticed I haven’t penned too many metals-only pieces these past few days, (with the exception of a molybdenum article I wrote last week). That’s because we have been spending our days writing our market forecasts and price predictions for the various metals many of you buy.

We look at dozens of reports, attend conferences, speak to contacts, conduct primary research, survey buying organizations, run spreadsheet models etc- all in an attempt to get our arms around metals markets and the myriad road signs for the metals covered on MetalMiner. And in nearly all of our research, we attempted to assess the Chinese economy analytically looking at risk, growth scenarios, projections, macro economic indicators etc. But this Google story suggested a far riskier scenario, one in which few if any of us have likely considered. In the Financial Times article, the author, Gideon Rachman suggests, “that the assumptions on which US policy to China have been based since the Tiananmen massacre of 1989 could be plain wrong.

The author goes on to suggest that the case against China will likely be made by labor activists, security hawks and politicians. But we see it also coming from various business sectors. The article goes on to suggest that President Obama may toughen up its China stance with, “an official decision to label China a “currency manipulator. Increasingly we have written about the case against China in the area of exchange rate setting. But make no mistake about it. The United States is caught in a classic Catch-22. We have this debt because we import more than we export (and we have for years now). Those dollars that flowed into China are funding our current stimulus and rescue plans. According to a webinar I recently attended, by 2015 over 34% of our GDP will go toward debt service. Our growth in recent years has been fueled by deficit spending.

I admire Google for pulling out of China. Now what we the masses do, and what we’ll do if the relationship turns icy, well, that’s an entirely different matter.

–Lisa Reisman

STEEL-PRICES_011810_02

I have steel on the brain (my apologies) and thought this would make for an interesting Wednesday morning quiz question:

Don’t be fooled by the flood of new economical small cars being announced this year, of which those on display at the Detroit Motor Show are only the beginning. Whatever the manufacturers may tell us, they are not really aimed at the US buying public. Led by Ford and Toyota, long the visionary leaders in developing the concept of the world car, a model so ubiquitous it would appeal in its standard form to buyers from Shanghai to Seville to Seattle, manufacturers have poured billions into developing models that can be produced on the same platform in multiple locations around the world and in so doing save them millions in production and duplicated R&D costs. Ford’s new Focus is probably the pinnacle of this trend, widely anticipated to be a huge hit in the US following its release at the show and already a best seller in Europe. While the economics of a one world car are indisputable it raises the question of whether  the world is really ready for the concept. The desire for small, medium and large cars varies dramatically around the world and to pour all one’s resources into developing small cars, manufacturers are ignoring a still significant market for medium to large saloons.

In 2009, 89% of cars sold in China were for the compact and sub compact market, stimulated no doubt by the government’s financial incentives to buy sub 1.6ltr engines, but in the US, which was going through the worst recession in 70 years, numbers had only crawled up to 21%. Jim Hall, managing director of motor industry analysis firm 2953 Analytics is quoted in the  Telegraph as saying manufacturers are perhaps fooling themselves, as outside of major urban centers like Manhattan, Boston and San Francisco, there is little actual demand for compact cars, especially with petrol prices back at the $3-a-gallon mark compared to the $4-plus peak in the summer of 2008 when oil topped out at $147-a-barrel.

Sales in North America for these small cars are likely to disappoint compared to other parts of the world and a better solution may be to develop more fuel efficient engines to power larger sedans (the route Mercedes and BMW are taking with their E class and 3 & 5 series diesel saloons),  some  of which are now capable of over 50mpg. Part of the manufacturers need for smaller cars stems from new environmental standards, with cars expected to be able to return 35.5 miles per gallon by 2016 under new US guidelines, manufacturers are judged on the average efficiency of their fleet. American buyers are, on the whole, not interested in small cars or in paying high upfront costs even if the long term economics are more attractive. Witness the hybrid market. After 10 years of availability in America – the most affluent major car market in the world only 2.8% of US cars are hybrids.

This has implications for the metal supply industry. Where during the recession the temporary  trend to smaller car sales exacerbated the decline in steel and aluminum consumption, the migration back to larger saloons likely to result from a gradual improvement in the economy will see a larger per vehicle metal consumption adding incrementally to metals consumption in the reverse of the demand destruction we saw last year. All this hype about a new generation Prius, the Nissan Leaf and GM’s Chevy Volt will amount to nothing in metal consumption terms. At a likely sales price of $30k, even after a $7,500 per car green technology rebate, sales of the Volt will be a dismally small part of the anticipated 11.5 to 12.5 million production units predicted by the industry for this year. And what does Mr. Hall think sales will be for 2010? He is expecting a double dip due to the heavily indebted commercial property market and says sales as a result will be just 10.9m. Let’s hope he’s not right on that one.

–Stuart Burns

Yesterday I had an opportunity to talk metals with Tracy Brynes and Chris Cotter on FoxBusiness.com. Back in my broadcast journalism days (well, that was one of my college majors if truth be told), every comment and every item was heavily scripted. Today, these internet interviews are a bit more refreshing as you have longer than 10 seconds to make a point. Of course no metal discussion would be complete without talking about the headliners: steel, copper, China, gold and of course rhodium.

Rhodium you may ask? Well, we have spent a good part of 2009 tracking various rare earth metals so rather than talk about neodymium (my other rare earth metal option for this year or lithium), I thought we’d give the low down on Rhodium.  The interview runs about 6 minutes. I’d welcome your feedback:

In the coming weeks, MetalMiner will be rolling out two versions of price predictions. We’ll cover the high level directional trends on the blog and then integrate detailed price forecasts including data from our own proprietary MetalMiner IndX(SM) and specific sourcing strategies via a premium content section.

If you have a metal you would like to see covered, drop us a line at info (at) agmetalminer (dot) com.

–Lisa Reisman

Who would be a steel producer in India? Just as the market is showing signs of a decent recovery, your government is pouring millions into infrastructure projects and the demand is allowing you to raise prices, as the market strengthens you are raising prices in modest increments only to have the government make you reverse the increases according to the Hindu Times. Not something the steel industry in the US has to contend with but in India things are done differently and the government feared Steel Authority of India’s (SAIL) recent Rupee 1,500/metric ton increase (US$33/ton) would add to inflationary pressures and force the state owned steel producer to retract the announcements and compromise on the increase. Although SAIL had cited rising raw material costs as the reason for the price increase, the government reasonably pointed out that as SAIL owns most of their own coal and iron ore reserves, raw material costs hadn’t materially changed. The price increase was taking advantage of an increasingly tight domestic market. What the government didn’t add was the market is partially shielded by import duties, without which SAIL would be facing much stronger competition from China and the Ukraine.

The domestic Indian steel market is doing very nicely this year. Tata Steel, the world’s eighth-largest steelmaker and India’s second, said last week sales from its Indian operations rose 73% in December to 636,000 metric tons from a year earlier and sales for the  third quarter rose 49% to 1.60 million metric tons. The Indian operations account for about a quarter of the group’s total annual global capacity of 30 million tons and no doubt helped the group nurse losses from their Corus subsidiary, Europe’s second-largest steelmaker. The breakdown of growth by product category illustrates that unlike China, the growth in India is coming more from consumption. Sales of flat products, used in automobiles and consumer durables, surged 90% in December, while sales of long products, primarily used in construction, rose “only 56%.

A recent Reuters headline said, “Metals power Indian shares to best close in 22 months says it all.   In addition to Tata, JSW, India’s number 3 steel maker said its crude steel output jumped 88% to 1.47 million metric tons in the three months to December encouraging all the private steel mills to raise prices. And not just steel – aluminum producers Hindalco and Balco are also enjoying rising returns as demand remains strong and rising world commodity prices allow them to realize higher sales prices while enjoying fixed raw material costs.

So in answer to who would be a steel producer in India, right now I think the answer is anyone given half a chance would jump at it. Producers of a range of basic metal products look like the blend of partial protection from imports, largely fixed raw material costs and a robustly growing domestic market will provide a profitable formula for the year ahead. No wonder the government is keen not to choke off India’s competitiveness by allowing prices to rise un-sustainably.

–Stuart Burns

1 168 169 170 171 172 174