Trends in Metals

We were reviewing Purchasing magazine this morning and noticed that there were a number of articles relating to various metals markets. With metals (copper, zinc, aluminum, steel) having significant impact on the electrical industry, we thought a recap and some thoughts might help.

• The weakened dollar has allowed U.S. steel mills to boost shipments to overseas buyers of pipe and tube and structural products. Comment – the weak dollar makes exports viable, keeping prices up (and supply tight) eventhough the U.S. market may be slow.
• Worldwide aluminum prices are expected to be slightly down from last year with ingot going from $1.21/lb to $1.19/lb due to power shortages in producing countries. Comment – essentially no change, at least something is steady!
• As we know, copper has been around $4/lb and the futures market is trading at $3.85-$4.00/lb. Global inventories are showing to be tight but there doesn’t be consensus if China will reduce its imports due to price, which, combined with the U.S. slowdown, would reduce demand, and hence prices. The CEO of Antofagasta Minerals, a Chilean copper producer, forecasts average world wide copper price this year will be $3.50/lb, .48 cents higher than his previous forecast. Comment – seems to be anyone’s guess! Trivia … did you know that a penny costs 1.7 cents to make and that a nickel costs 9.5 cents to make! (and who said a penny and nickel business couldn’t be profitable).
• The CEO of a zinc mining company, Teck Cominco, thinks zinc will increase over the next two years, due to the closing of mines.

A couple of thoughts….

• These are all prognostications. Analysts and CEOs can be wrong.
• Given a weak dollar and increasing commodities, perhaps this is the time to be recommending product alternatives to customers who have budgetary constraints. When should aluminum be recommended over copper or PVC over steel or … ??? This requires salespeople and quotations groups to consider alternatives and have product application knowledge.

And, while we talking about commodities, what percentage of your growth (and profit if you are a distributor) has come from commodities and price increases over the past couple of years vs. from process improvement and taking market share? If you are only riding the wave of commodities, your net margin dollars are probably diminishing.