Materials Outlook 2013


Published on

How will raw material prices and other factor cost drivers influence the overall of cost of goods sold for product being sourced out of China? This outlook gives our readers a clear understanding of the key factors that drive production costs in China for hardline manufacturers. We review global demand, currency markets, metals pricing and freight and consider how the outlook for each of these drivers will influence the cost of hardlines manufactured in China. This semi-annual publication is distributed to our clients and offers a summary of our in depth research. It is used by Sertus and our clients to extract savings from more effective purchasing management and deliveries given the specific outlook for each segment covered.

Published in: Education
1 Comment
  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Materials Outlook 2013

  1. 1. Materials Outlook 2013: Factor Cost Implications for Chinese Hardlines-
  2. 2. Sertus Research Materials Outlook1-877-6-SERTUS Factor Cost Implications for Chinese December 2012 Copper (Cu): The global inventory pipeline for copper2013 Global Outlook continues to be depleted and relief is not anticipated for at least a few more years. Global copper production, like last year, already faces several structural problemsThe fallout of the 2008-2009 crisis still lingers and has (lower grades, increasingly complex new projects,left a lasting impact on the global economy that will adverse weather conditions and enhanced geopoliticalcontinue into 2013. Global growth will have dropped risks). This is exacerbated by capex reductions fromto around 3 percent in 2012, which is reduction of about many large producers due to higher costs and lowhalf a percentage point off the long-term trend since the prices for the metal. On the demand side, there is muchcrisis emerged. There is still a high level of uncertainty uncertainty given weak manufacturing, contraction inaross key regions – from the ‘fiscal cliff’ concerns in balance sheets and limited credit availability. However,the U.S. to the Chinese leadership transition and we believe that the major end-markets for Cu in Chinareforms in the Euro Area. All of this uncertainty keeps (power, autos, white goods) are looking much better.a lid on investment and ultimately hurts trade. As a This is especially true for power grid infrastructureresult, the risks continue to be skewed to the downside, (making up 47% of Cu demand), which is expected tofavoring a more cautious outlook for next year. From a grow 88% per Chinas Five Year Plan (2011-2015). Wefactor cost standpoint, this should translated into a more can see Cu trading higher on the back of thisstable inflationary environment for Chinese goods. investment, pushing RMB70,000 levels in 2013.Currency MarketsThrough November, the RMB has appreciated againstthe USD by roughly 1% in 2012, well below what mostanalysts thought would happen at the end of last year.Much of this has been due to the slowdown in Chinaand the continued reliance on the export sector to fuelwealth creation. There are many who believe thatBeijing is going to speed up the opening of thecountrys capital account and that the RMB will becomea convertible currency within the next five years.Because most all commodities are priced in dollars, anyrise in the USD (while not having an impact in realterms), will weigh on nominal prices. The continuedexpected RMB appreciation vs. USD thus bodes well Aluminium (Al): High global inventories and excessivefor raw material inputs for Chinese goods. production capacity should keep Al prices down over the next 12 months. Low LME prices, high costs, andBase Metals low demand growth have already resulted in a number of voluntary non-Chinese cutbacks in capacity.Basic improvements in the Chinese macro data and However, these announcements have been modestsigns of strength in Chinas white goods, auto, and compared to total installed capacity and production.infrastructure sectors has put upward pressure on base Infrastructure spending in China, which is expected tometals pricing in recent months. However, the global increase next year, should put upward pressure on thisoutlook, which continues to be precarious, could hold metal but the degree of influence is not yet known. Ourany material price appreciation in check. We look at best estimate is that Al prices will increase moderatelythe implication of each of the key base metals that form in 2013 but around important role in raw material inputs for hardlinesmanufacturers in Page 1
  3. 3. Sertus Research Materials Outlook1-877-6-SERTUS Factor Cost Implications for Chinese December 2012Steel FreightWith the global economy continuing to cool andconstruction reeling from soft demand, it is expectedthat demand for steel will continue to show signs ofweakness. Today, China produces nearly half of theworld’s steel. As recently as 1999, China wasproducing about 110 million metric tons per year,slightly more than the U.S. By 2004, the number rose to250 million. Today, China cranks out nearly 800million metric tons of steel a year. The next biggestproducers are Europe (200 million), North America(150 million), Japan and the former Soviet Union (eachabout 120 million). Chinas apparent steel use in 2012 is After climbing from the lows at the end of last year, theexpected to increase by 4.0% to 648.8 Mt following China Containerized Freight Index (CCFI) peaked in6.2% growth in 2011. In 2013, steel demand is expected April and has since been on a steady decline. We areto grow by 4.0%. This projection brings Chinas now running close to the highs of 2010, although theapparent steel use in 2013 to 674.8 Mt, 61% higher than trend continues downward. Most analysts believethe 2007 level. Most analysts anticipate some price shipping costs will return to 2011 levels, except foreasing over the long run, although in the short term some possible spikes in the run-up to Chinese Newthere may be some volatility. A benchmark product in Year due to possible container shortages. However,China - hot-rolled carbon sheets – is already selling new orders for container ships are beginning toaround $520-$530/metric ton and should be selling for reappear on a larger scale following two years almostat least $600 just to cover costs. China has already without contracting a single new vessel. The new ordersstarted to cut production just like it did in 2010 and are for ships due for delivery in 2013 and 2014. New2011. With this tightening in supply we expect $100 to supply coming on-line, coupled with the weak global$120 per metric ton increases. Look for higher prices at scenario and downside risks vis-a-vis Europe and US,the beginning of 2013 and easing as we move from all bode well for importers shipping costs in 2013.2Q13 into the second Page 2