by Taras Berezowsky
In the first part of this article, downward iron ore price trends took center stage as the #1 potential gamechanger in 2014 as far as metals market disruptions go. With the strength of Chinese demand uncertain, and new Australian supply from Rio Tinto (NYSE:RIO), BHP Billiton (NYSE:BHP) and Fortescue (OTCQX:FSUGY) coming on-line, global steel markets could feel quite a ripple effect next year.
Now we soldier on to our #2 and #3 other headline gamechangers that your company should keep an eye on in the next year.
Gamechanger #2: LME Aluminum Warehousing Hits Premiums
When presenting at our recent Commodity/PROcurement EDGE conference in Chicago, editor Stuart Burns said, "LME aluminum warehousing load-out rules, if adopted and enforced, could indeed have a catastrophic effect on the overall market."
The problem in a nutshell is this: if the LME passes a rule increasing load-out rates, the fear is that markets will be flooded with aluminum stocks, thereby drawing down prices and the premiums charged on top of the LME price - which help primary aluminum producers such as Alcoa Inc (NYSE:AA) and Russia's UC Rusal remain as profitable as they have been.
Other commentators we follow on the scene, such as the Financial Times' Jack Farchy, hems and haws on this a bit: "Those betting on a rapid end to financing deals and a collapse in premiums may be disappointed," he wrote at the beginning of LME Week. "While some banks have become more cautious about taking financing deals on their own books, they are happier than ever to provide credit to trading houses to do the same deals. And as long as money remains cheap, there will be plenty of people willing to stockpile physical metal to pocket contango spreads, keeping physical premiums high in spite of changes to the warehousing rules."
However, we've already seen the big boys get upset by dropping premiums just a few days ago. Alcoa's CFO and Vice President William Oplinger said recently that premiums paid on top of the LME benchmark price have dropped 17 percent in Europe, 4 percent in Japan and 11 percent in the United States in just three months, according to Reuters. Premiums in the U.S. have fallen to 10-11 cents per pound from a record 12 cents before the LME's announcement to overhaul warehousing policy in July…chances are, they have further to go into 2014.
Gamechanger #3: Automotive Industry Staying Strong?
Sure, we've all seen U.S. auto sales hit pre-recession highs, and the U.S. Big Three automotive OEMs are selling into Asian markets more than ever before, not to mention holding their own in the domestic market. However, we wonder if the blip in September (sharply lower sales) is an indicator of future activity. Will these halcyon days continue into 2014?
One potentially good sign of a leaner, more agile U.S. automotive industry ready to take on the global market in the next year and beyond: General Motors' new stamping plant in Texas, which will supply its assembly plants…right next door. This is news because the stampings used to be shipped from GM's Michigan and Ohio plants, incurring the company tons of shipping costs. If this type of activity continues, and if the economy continues improving, Americans will keep buying cars.