2014 material price outlook ihs buyers guide

7/17/2019 2014 Material Price Outlook IHS Buyers Guide

http://slidepdf.com/reader/full/2014-material-price-outlook-ihs-buyers-guide 1/8

IHS Material Price Outlook:

A 2014 Buyer’s GuideTop industry analysts provide valuable insight on pricing, availability, andproduction of key global commodities for the coming year.

nowledge is power in today’s business world, where having the most accurate and reliable

ata at your fingertips quickly translates into a competitive advantage, more confident

ecision-making and stronger bottom lines.



Introduction

According to a recent IHS survey of 200 senior-level supply chain, sourcing and procurementprofessionals, the top commodities of concern in 2014 are chemicals and plastics, followedby nonferrous metals (i.e. aluminum, copper, lead, nickel, tin, titanium and zinc, brass,etc.), and ferrous metals (i.e. stainless steel, carbon steel, iron etc). For this reason, theIHS Material Price Outlook: A 2014 Buyer’s Guide is broken into three sections focusing eachsection on these top commodities of concern, covering a mix of high-level insights andobservations plus detailed data and analysis. Based upon insight from the IHS Pricing andPurchasing Service, this report provides vital market, price, and cost information for critical

commodities in order to help organizations make informed sourcing and procurementdecisions through 2014 and beyond.

Chemicals & Plastics: The Fundamental Building Blocks

Chemicals and plastics are essential building blocks for just about every industry, rangingfrom energy to electronics, transportation to packaging and consumer products. Elevatedcosts and pricing volatility will prevail in the chemicals and plastics sector for 2014 as crudeoil values remain high and demand for these fundamental feedstocks stay strong. Worldevents have also impacted pricing for chemicals and plastics, which are highly affectedby geo-political turmoil and weather-related disasters. “Producers of a number of thesecommodities are enjoying strong margins right now,” says IHS Senior Director of Chemicals,Howard Rappaport, “and we don’t expect to see much change until later in 2014.”

Prices could be driven down by the introduction of new capacity (driven by low-costfeedstocks and integration strategies in North America, Asia, and the Middle East) in 2015and beyond, but the additional supply isn’t likely to change short-term market dynamics inthe plastics and chemicals markets. With high crude oil prices continuing to pressure thecost side of the equation, the likelihood of significantly lower prices is low. “Price levels willremain elevated for most products,” Rappaport explains, “but more stable with downsidepotential later in the year.”

Taking a closer look at the basic building blocks that comprise many chemicals and plastics,ethylene prices remain high – yet costs (particularly in North America) are low relative tohistory – and continue to yield record margins for producers. And while ethylene pricescould spike slightly due to recent supply related issues, Rappaport expects them to remain“relatively flat” throughout most of 2014 – namely due to increased availability. “We expect

a huge surge in ethylene capacity over the next several years in North America,” he adds,“while producers in Asia and the Middle East continue to build as planned.”

Ethylene Price Outlook

1,800

1,600

1,400

1,200

1,000

800

600

40005 06 07 08 09 10 11 12 13 14 15 16

Southeast Asia Spot Ethylene

U.S. Large Buyer Contract Ethylene West Europe Contract Ethylene

South America Ethylene

Figure 1 The turnaround schedulein the first half of 2014 for crackerscould affect spot pricing starting inJanuary as market players startpre-building inventories.

2

IHS Material Price Outlook: A 2014 Buyer’s Guide



Propylene prices should remain “slightly higher” in 2014 but will continue to be volatiledue to supply issues brought on by planned refinery outages and other events. Buyers ofbenzene should brace themselves for elevated prices over the next 12-18 months, whilethose procuring butadiene will find pricing to be heavily influenced by crude oil beginningto trend higher in the second quarter of 2014.

Chemicals & Plastics: Implications for Buyers

Ethylene

• Slightly lower prices near term, but higher in early 2014

• Keep an eye on hurricane activity in USGC (season ends 11/30)

• Big investments coming in US capacity longer term = better pricingPropylene

• Tight supply in the US near term

• Higher prices in early 2014

• More “on purpose” production will provide relief Benzene

• Closely following oil price trends

• Prices will remain above $4.00 per gallon through 2014Butadiene

• Recent high prices coming down early in 2014 as supply improves

• Continuing volatility will plague rubber prices until “on purpose” capacity arrives

0

5

10

15

20

25

30

35

2000 2002 2004 2006 2008 2010 2012 2014 2016 2022

On Purpose Propylene Production, Million Metric Tons

Ex Dehydro - PDH Metathesis Olefin Cracking

Via Methanol: CTP HS FCC Others On-PurposeFigure 2 More “on purpose”production will drive globalpropylene capacity growth

3




Base Metal Markets: Range Bound

As 2014 comes into view, companies buying aluminum, copper, and nickel shouldcollectively expect to see prices move in a fairly narrow band. Known for their volatility,base metal prices have fallen some 30% since their most recent peak in February 2011. Webelieve, however, that production costs will limit any substantial downside moves fromthis point. But the upside is also capped. Relatively sluggish demand growth coupled withample capacity or high inventory levels look to restrain any upward price moves. “Theglobal recovery is on track, but it’s slow and sluggish,” says IHS Lead Nonferrous MetalsAnalyst, John Mothersole. “There’s a bottom forming right now with a mild uptick in

pricing expected as we move through 2014.”

Global nonferrous metals consumption growth remains relativity modest, with Chinabeing the wildcard in the market right now. “China is becoming more focused on domestic

consumption rather than investment and exports,” Mothersole points out, “and is thereforenot likely to show the same strength in metal consumption that characterized the middleof the last decade.” The chart below illustrates this and suggests a different demand profilegoing forward.

1.0

1.4

1.8

2.2

2.6

3.0

2004 2006 2008 2010 2012 2014

IHS Index of Primary Nonferrous Metal Prices, 94-95=1.0

Figure 3 No return of the“Supercycle” – prices look flat 25%below their recent peaks

-4.0%

0.0%

4.0%

8.0%

12.0%

2000 2002 2004 2006 2008 2010 2012 2014

Global Metal Consumption Growth (Combined Al, Cu, Ni, Pb, Zn, percent change)

Figure 4 Chart: Consumption growthimproves, but remains modest in2014.

4




Aluminum, which remains in a large surplus condition, is plagued by a huge inventoryoverhang. Perversely, the physical market exhibits a degree of tightness because much ofthis inventory is locked up in so-called financing deals. These financing deals are essentiallyarbitrage plays that take advantage of the large difference between forward and spot pricesright now. Higher interest rates would end this carry trade and release metal back ontothe market, dampening prices. At the same time, however, softer prices, which are alreadybelow costs for many producers, would force production cuts, narrowing the market’ssurplus and setting up price increases. “Aluminum prices are unsustainably low right now,”says Mothersole. “There’s nowhere to go but up.”

Nickel prices – another market currently oversupplied – will fluctuate in a fairly narrowrange during 2014. “Nickel prices are also below production costs right now,” Mothersoleexplains. “That limits any downside move, but it will also be difficult for nickel prices tomove up even modestly given market conditions.”

Copper is our one exception next year – prices should fall steadily across 2014. The reasonis a growing surplus based on continuing strong growth in mine production. Current pricesare well above production costs, meaning the downside in copper is potentially large ifthere is a substantial inventory build during the year.

While fundamentals do differ, as a group, non-ferrous metal prices in 2014 “look to movesideways”, according to Mothersole

Non-Ferrous: Implications for Buyers

Aluminum

• Prices are unsustainably low

• But another surplus in 2014 and a huge inventory overhang limit the upside

• Watch interest rates – they will signal the beginning of the end for financing dealsand lower premiums

• Changes in LME warehousing rules slated for April may also have the same effectCopper

• Prices are headed lower

• Surplus widens in 2014, with inventory heading higher

• Downside is only limited by production costs, which are well below $6,000/mtNickel

• Like aluminum, prices are unsustainably low

• But also like aluminum, another surplus in 2014 and high inventory limit the upside

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1 8 9 5

1 9 0 5

1 9 1 5

1 9 2 5

1 9 3 5

1 9 4 5

1 9 5 5

1 9 6 5

1 9 7 5

1 9 8 5

1 9 9 5

2 0 0 5

2 0 1 5

Copper/Aluminum price ratio: copper still looks rich even

after next year’s correction

Figure 6 Nickel inventories areat record highs with a risingcoverage ratio

75

100

125

150

175

200

225

250

275

2000 2002 2004 2006 2008 2010 2012 2014

Nickel Inventory, thousands of metric tons

Figure 5 market looks well supplied

with prices falling well below $6,500mt next year

5




The Steel Markets: Good News for 2014, but Danger Lurks

Organizations shouldn’t feel pressed to buy steel right now or through much of 2014,that is unless they want to lock in today’s prices with the knowledge that costs could jump slightly over the next few months. “Prices on steel should be flat in 2014,” says JohnAnton, Director of the IHSSteel Service within thePricing & Purchasing group.“Companies that lock innow would basically be

mitigating risk; this is goodtime to buy just to makesure the climate doesn’tworsen.”

Credit China with helpingto keep steel prices at bayover the next 12 months.Mills in the country areover-producing to thepoint where the profit on an entire ton of steel equals a single bowl of rice. “They’re losingmoney,” says Anton. That lack of profitability could translate into a very different scenarioin 2015 as low prices cause mill failures and, subsequently, higher prices.

In specific ferrous categories, hot rolled carbon sheet remains in high demand in NAFTAand China, but less so in Europe. Expect a slight price increase in late-2013 to retreat byearly-2014. Anton advises locking in pricing now to minimize risk, but notes that there is“otherwise no reason to rush into procuring hot rolled carbon sheet.” Demand for plate,on the other hand, should rise significantly in the coming year as premium over sheet iscurrently “much narrower than normal,” says Anton. “Try to lock in current levels for2014, especially Asian prices.”

Demand for merchant bar will increase in 2014 in line with overall manufacturing trendsand as idle capacity remains rampant. “Try to fight North American price hikes,” Anton

advises. “In other regions, lock now if cautious and buy spot if you are daring.” Concretereinforcing bar (rebar) should also see a spike in demand for 2014 – also due to high levelsof idle capacity – and a premium exists for this commodity sector, albeit not as wide as itdoes for other products. “Buy soon,” says Anton. “The price is low and the logical directionis upwards.”

400

500

600

700

800

900

1000

2009 2010 2011 2012 2013 2014 2015

A x i s T i t l e

Hot rolled carbon sheet

(Dollars per metric tonne)

United States

Europe

China

500

600

700

800

900

1000

1100

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

A x i s T i t l e

Merchant Bar

(Dollars per metrictonne)

United States

Europe

China

China

Other

Asia

EuropeNorth

America

South America

Best Worst

6




Due to an expected price increase of nickel, buyers should expect an increase in nickel-bearing stainless steel. “Nickel is only 10% of the chemistry, but 70% of the cost,” says Anton.“This is a very good time to lock in any nickel-bearing stainless.” For 2014, chromium pricesare sideways, so if you if you’re not buying nickel-bearing stainless steel, you will be lesspressured to buy now. There’s less pressure on 400 grades than 300 grades. If you’re buying300 grades buy as quickly as you can. Right now, buyers are seeing the best prices they’veseen since 2004.

Steel Buying Advice

•Input costs (surcharges) will rise in 2014•Nickel selling at/below cost

•Stainless mill capacity is high,utilization is fairly low

•Prices will rise in coming years

•Ni, Cr, other alloy metals increase for2014 and beyond

•Beware of labor and electricity problemsin South Africa

•Advice: buy ASAP

Ferrous: Implications for Buyers

Sheet

• Sit on your wallet until February or March, unless you are offered a full year at areasonable price.

Plate

• Lock in current bargains. 2014 will not explode, but right now there is opportunity.Bar steel – Commodity grades

• Buy soon or sit until 2014 Q2. Not extreme, but up.

• Watch out for US protectionism on rebar and wire rod.Bar steel – Special bar

• Live hand to mouth. Prices should fall sharply in coming months.Stainless

• Buy now! This is our most clear cut advice.

Conclusion

Commodity prices have become less stable. Their sting is now felt throughout the supplychain to a greater degree and at a greater speed than previous decades. Buyers can turnturmoil into opportunity by buying on dips during volatile times. To achieve success at thisstrategy, buyers must be actively monitoring weekly or even daily price movements wherepossible.

The IHS Pricing & Purchasing Service enables supply chain cost savings by providingtimely, accurate cost and price analysis. Armed with a better understanding of suppliers’cost structures and market dynamics, organizations can effectively negotiate prices,strategically time buys, and boost the bottom line.

IHS has created a volatility price indicator to help identify turning points and futurecommodity price swings. Understanding the characteristics of recent periods of volatilitycan provide valuable guidance in how to face volatile times to come.

2000

3000

4000

5000

6000

2 0 0 7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

A x i s T i t l e

Stainless(Dollars per metric ton)

United States

Europe

China

7




About IHS Pricing & Purchasing Service

On the leading edge of economic modeling, IHS Pricing & Purchasing provides timely,accurate price and cost analysis including ten-year forecasts and historical records forthousands of commodity prices and wages around the globe.

With a greater understanding of suppliers’ cost structures and market dynamics, clients can:

• Evaluate price quotes and enhance negotiating power

• Build composite cost indexes

• Identify competitive suppliers

• Strategically time purchases• Determine project validity, risks and long-term costs

• Better manage supplier relationships• Quantify and benchmark procurement costs by business unit or product line

Benefit from our breadth of market expertise and our proven cost

modeling framework

With a database of more than 80,000 historic prices and thousands of price, wage, andinput cost forecasts, IHS offers more coverage than any other provider in the market. IHShas been supplying forecasts of key commodity, labor, and input costs since 1970 -- helpingdefine the purchasing advice industry.

North America Europe Asia-Pacific Rest of World Total

Electronic Components (1,000+ Prices) are available to add on to any of the P&P packages

Agricultural Modules: Grains, Sugar, Dairy, Oils, Livestock, Biofuels are available to add on to any of the P&P packages

Labor (200+ Wages) Labor (200+ Wages) Labor (100+ Wages) Labor (100+ Wages) TOTAL WAGES: 750+

Energy (100+ Prices) Energy (150+ Prices) Energy (10+ Prices) Energy (≈100 Prices)TOTAL ENERGY PRICES:

400+

Steel (50 Prices) Steel ( ≈50 Prices) Steel (20+ Prices) Steel (≈10 Prices)TOTAL STEEL PRICES:

100+

Non-Ferrous

( ≈50 Prices)Non-Ferrous (20 Prices)

Non-Ferrous

(10+ Prices)Non-Ferrous (2 Prices)

TOTAL NON-FERROUS

PRICES: ≈100

Chemicals & Plastics (

≈100 Prices)

Chemicals & Plastics

(50+ Prices)


(≈50 Prices)


(2 Prices)

TOTAL CHEMICALS &

PLASTICS PRICES: ≈200

Building Materials

Capital Eq

Paper/Packaging

Logistics

Indirect Spend

Building Materials

Capital Eq

Paper/Packaging

Logistics

Indirect Spend

Building Materials

Capital Eq

Paper/Packaging

Logistics

Indirect Spend

Building Materials

Capital Eq

Paper/Packaging

Logistics

Indirect Spend

TOTAL OTHER PRICES:

400+

TOTAL NORTH

AMERICAN PRICES AND

WAGES: 700+

TOTAL EUROPEAN

PRICES AND WAGES:

400+

TOTAL ASIAN PRICES

AND WAGES: 100+

TOTAL RoW PRICES

AND WAGES: ≈200

GLOBAL PRICING

COVERAGE: 1300+ Prices

and Wages

Figure 8 IHS Pricing & Purchasing Service commodity coverage across industries and geographies

For more information

To learn more about the IHS Pricing & Purchasing prouduct suite, visit

www.ihs.com/pricingpurchasing

Americas Aisa/Pacific Europe, Middle East & Africa +1 800 447 2273 +81 3 4530 9703 +44 (0) 1344 328 155


2014 material price outlook ihs buyers guide

Documents