For those who make their living from Metal Stamping
Via Yahoo! Canada News
A coal mine accident early on Tuesday killed 13 people and 66 others were missing in central China’s Henan Province, the Xinhua news agency reported, citing the state work safety watchdog.
China’s mines are the deadliest in the world, due to lax safety standards and a rush to feed demand from a robust economy. More than 3,000 people died in coal mine accidents in 2008 alone.
From the San Francisco Business Times:
Four Northern California companies in the past five months have reshored products from China to Wright Engineered Plastics, said President and CEO Barbara Roberts. Their reasons range from costs to vicinity to market and from quality to finance.
Chinese manufacturers, for example, won’t ship until a product is completely paid for, Roberts said, and then transportation could add another 30 days or more.
“That’s a double-whammy,” she said.
This is something I commented on already a few years back. As some jobs go to China, others come back. And I think this “onshoring” trend, if anything, is increasing recently, as health and safety concerns raise their heads.
This hardly seems like much of a surprise. It’s hard to consider absorbing a 70% increase in iron ore cost and not having it hurt you.
chinadaily.com.cn
Costs for China’s large and medium-size iron and steel manufacturers rose by more than 250 billion yuan ($36.5 billion), or 57.57 percent, in the first half, according to the China Iron and Steel Association (CISA).
The cost hike was due to the soaring prices of materials and fuel, said the CISA, noting the country’s iron and steel companies were facing tremendous pressure this year.
The soaring costs resulted in profit falls, with the half-year rate of return on sales for large and medium-size iron and steel suppliers at 7.61 percent, 0.95 percentage points lower than the same period last year.
One of the issues bubbling while I wasn’t blogging was the iron ore price increase that Chinese steelmakers had to accept recently. There are many articles about it, many opinions, all contradictory (of course).
Let’s start here:
China’s steel mills shrug off iron ore rise. An amazing feat, if true. I don’t know too many industries that can shrug off an 85% increase in a major input cost.
Big steelmakers in China on Tuesday shrugged off the impact of Monday’s record rise in iron ore prices, but the higher prices could increase cost pressures on smaller mills and hasten consolidation in the industry.
The average 85 per cent price increase agreed with Rio Tinto, the Anglo-Australian miner, was within the range of expectations, analysts said. Chinese mills had been expecting a price rise of at least 65 per cent[…]
“They [large and medium-sized steelmakers] can still maintain a long-term pricing system with the Australian miners,” and avoid higher-priced spot market purchases, Ms Wang said.
But analysts said thousands of smaller Chinese mills could be affected if the pricing agreement leads to higher spot prices, hastening consolidation in the steel industry. Smaller mills buy iron ore on the spot market and are unable to lock in prices by annual contract.
If this leads to consolidation of the chinese steel industry, this should lead to higher prices for chinese goods made of steel. The article says a 3% rise in output prices should cover it.
The consolidation effect was predicted already as far back as February, in the China Daily. Iron ore price rise could force China steel rationalization
China imports almost half of the world’s seaborne iron ore, making it the largest iron ore consumer in the world, but it has become a price-taker for this basic input for steel — perhaps because it waited too long to negotiate with major suppliers.
I also blogged on it at the time.
At the end of June, chinastakes.com wrote Iron Ore Price Hike to Swallow Chinese Steel Producers’ Profit
Apart from the iron ore price hike, the coking coal price rise will also lift the production cost of domestic steel producers. […] With steel companies facing increasingly high production cost, profits are expected to slide in the near future.
Apart from the iron ore price hike, the price of coal and coking coal, as well as transportation costs are also increasing. In December of 2007, the average production cost of steel and pig iron in large and medium-sized steel companies increased by 31.05% over the same period in 2006.
The production cost increase of steel companies, a large part of it a result of the rise in iron ore and coking coal prices, will have a profound influence on the shipbuilding industry, the construction machinery industry, and the household appliances industry.
None of those are directly customers for small and medium sized stamping outfits, but each of those industries utilize loads of smaller stamped metal parts. Where the major manufacturing goes, so goes the little guys.
At the end of June, Mineweb.com said that Chinese dependence on iron ore imports has been growing, and was likely to rise in future.
while China was the world’s biggest producer of iron ore at 520mt in 2006, representing almost a third of global production, much of this material is very low grade.
China will become more dependent on imported iron ore in future, despite the fact that its own production of iron ore has been increasing rapidly since the start of the century. Monthly imports have been growing at a much faster pace and are now almost double its own production.
Today, several sources, including Steel on the Net announced that Sinosteel succeeded in its bid to gain control of Australian iron ore miner Midwest. Stock exchange documents show it now has a majority stake in the target company. http://en.ce.cn/Business/Enterprise/200807/12/t20080712_16135812.shtml
See also: Forbes Sinosteel buys controlling stake in Aussie miner
Old Jobs Not Coming Back, McCain Warns Ohio Autoworkers
McCain […] reiterated that message on Friday, saying that the government should provide better worker retraining programs and incentives for companies like GM to create new jobs making environmentally sensitive products.
“The same old jobs aren’t going to be there,” he said. “The new jobs are here at Lordstown.”[where GM makes the fuel efficient Chevrolet Cobalt]
General Motors has announced that it plans to sell a totally electric vehicle in 2010. McCain this week proposed a $300 million award to anyone inventing a radically better electric car battery.
An interesting (if a little irritating) youtube snippet. Like all things youtube, it’s too short to garner context. Maybe he didn’t mean it this way, I dunno. But it sure sounds weird.
Transcription–
JOHN MCCAIN: What we have to do is embrace this new technology, accept the fact and enjoy the fact that there’s new jobs and the old jobs aren’t coming back.
Also on this theme, BusinessWeek had an interesting cover story last month.
Can the U.S. Bring Jobs Back from China?
American factories and supplier networks in many industries have withered in the era of globalization, so it will take lots of time and capital before the U.S. can become a big player again. In electronics, for instance, there has been a mass migration of component makers to China in the past decade. Ditto for suppliers to Midwest heavy-equipment makers and North Carolina’s furniture industry.
[…]
The global industrial landscape certainly appears to be in the early stages of a realignment. The euro’s breathtaking rise against the dollar has spurred European makers of cars, steel, aircraft, and more to shift production to the U.S. Now the soaring cost of fuel is making it pricier to send goods across the Pacific.
According to ABC news, at least some jobs are coming back.
As the cost of shipping continues to soar along with fuel prices, homegrown manufacturing jobs are making a comeback after decades of decline.
Furniture designer Carol Gregg used to have her signature Chinese chests assembled in China, but such a luxury no longer seems viable, considering that some of her pieces now cost five times more to ship.
So now Gregg is having the chests made in North Carolina, simply because its cheaper.
“It’s not just about labor costs anymore,” says Rubin. “Distance costs money, and when you have to shift iron ore from Brazil to China and then ship it back to Pittsburgh, Pittsburgh is looking pretty good at 40 bucks an hour.”
reportonbusiness.com
The soaring cost of fuel is whittling away at the cheap-labour advantage enjoyed by Asian exporters, giving Canadian firms a welcome edge in their fight to win back business from Asian competitors.
Two bank economists argue in a report released Tuesday that because of higher fuel costs, shipping a standard 40-foot container from Shanghai to the east coast of North America now costs $8,000 (U.S.), up from $3,000 in 2000 when oil was just $20 a barrel.
That higher cost is passed on to North American consumers, making goods from China and other Asian places more costly compared to the offerings of domestic North American producers.
Some Canadian manufacturers are already noticing the effect.
[…]
Jeffrey Rubin and Benjamin Tal of CIBC World Markets Inc. say higher oil prices are reversing the world-is-flat effect, in which lower trade barriers and new technologies like the Internet made it cheaper to move goods and services from developing Asia to the markets of the rich world.
“In a world of triple-digit oil prices, distance costs money,” they write. “And while trade liberalization and technology may have flattened the world, rising transport prices will once again make it rounder.”
Mr. Rubin and Mr. Tal say the steel sector is a prime example of the world-is-round effect.
Chinese steel exports to the United States are falling by more than 20 per cent year over year. China’s costs have risen because Chinese producers have to bring in their iron ore from faraway places such as Australia and Brazil, then ship the finished steel to the United States. As a result, U.S. steel producers actually have an advantage over Chinese rivals.
[…]
“This is an environment in which shipping from the Pacific Rim may not make sense any more,” Mr. Tal said in an interview.
“If you’re thinking, ‘maybe we should bring in a container from China,’ you should think again.”
Now here’s an aspect of the China quake scenario I’ll bet you hadn’t considered …
Heightened concerns that China’s devastating earthquake will curtail the country’s massive metals output helped aluminum, zinc and other base metals extend a two-day rally Friday.
[…]
China is the world’s largest producer of zinc, aluminum and lead.
Only a sliver of the country’s base metals mining and production takes place in Sichuan province, the epicenter of Monday’s 7.9-magnitude earthquake, which Chinese authorities now estimate has claimed more than 21,500 lives. But the two nearby provinces also jolted by the quake — Shaanxi and Gansu — have mines and smelters as well.
Bloomberg wrote:
Zinc rose in London, heading for the biggest weekly gain since February, as the biggest earthquake in nearly six decades in China hit output in the world’s biggest producer. Aluminum also climbed.
China’s 7.9-magnitude earthquake is affecting as much as 350,000 tons of zinc smelting capacity in Sichuan and neighboring provinces, according to Beijing Antaike Information Development Co. The tremor that took place May 12 also affected transportation and power supplies.
At the same time, other analysts are saying that China will temporarily stop buying some metals, because they are distracted by bigger domestic issues at the moment.
However, logic would indicate that, if there is rebuilding to be done afterwards, they will need more, not fewer, resources.
MEPS INTERNATIONAL
Since it was announced that iron ore prices would rise by 65 percent, Chinese mills have sought to lift steel values quite substantially. Japanese producers have tabled advances of ¥20,000 per tonne for April deliveries and may even adjust prices further in the third trimester. Market values have already strengthened considerably in the wake of the announcements, amidst tight supply caused in part by buoyant demand from the auto makers.
This usage of the word “accident” raises more questions than it answers. How do you accidentally mix steel with cobalt-60?
USATODAY.com
Italian police said Monday they have seized 30 tons of Chinese-made steel that had been contaminated by a radioactive substance.
[…]
The steel had been accidentally mixed during production with cobalt-60
China Daily
[…]higher costs might actually help rationalize the Chinese steel industry by pricing some smaller firms with obsolete technology out of business.
After Brazilian mining conglomerate Vale hammered out 2008 benchmark prices for iron ore fines with Japanese and Republic of Korea (ROK) steel makers last week, Baosteel Group, China’s largest steel maker, agreed on the price for fiscal 2008, accepting the Brazilian miner’s price hikes that ranged from 65 percent to 71 percent compared with 2007.
[…]
China’s steel needs have soared, driven by rapid urbanization and many large infrastructure projects. China imports almost half of the world’s seaborne iron ore, making it the largest iron ore consumer in the world.