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IHS Material Price Outlook:

A 2014 Buyers Guide


Top industry analysts provide valuable insight on pricing, availability, and
production of key global commodities for the coming year.

Knowledge is power in todays business world, where having the most accurate and reliable
data at your fingertips quickly translates into a competitive advantage, more confident
decision-making and stronger bottom lines.

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IHS Material Price Outlook: A 2014 Buyers Guide

Introduction
According to a recent IHS survey of 200 senior-level supply chain, sourcing and procurement
professionals, the top commodities of concern in 2014 are chemicals and plastics, followed
by 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, the
IHS Material Price Outlook: A 2014 Buyers Guide is broken into three sections focusing each
section on these top commodities of concern, covering a mix of high-level insights and
observations plus detailed data and analysis. Based upon insight from the IHS Pricing and
Purchasing Service, this report provides vital market, price, and cost information for critical
commodities in order to help organizations make informed sourcing and procurement
decisions through 2014 and beyond.
Chemicals & Plastics: The Fundamental Building Blocks
Chemicals and plastics are essential building blocks for just about every industry, ranging
from energy to electronics, transportation to packaging and consumer products. Elevated
costs and pricing volatility will prevail in the chemicals and plastics sector for 2014 as crude
oil values remain high and demand for these fundamental feedstocks stay strong. World
events have also impacted pricing for chemicals and plastics, which are highly affected
by geo-political turmoil and weather-related disasters. Producers of a number of these
commodities are enjoying strong margins right now, says IHS Senior Director of Chemicals,
Howard Rappaport, and we dont expect to see much change until later in 2014.
Prices could be driven down by the introduction of new capacity (driven by low-cost
feedstocks and integration strategies in North America, Asia, and the Middle East) in 2015
and beyond, but the additional supply isnt likely to change short-term market dynamics in
the plastics and chemicals markets. With high crude oil prices continuing to pressure the
cost side of the equation, the likelihood of significantly lower prices is low. Price levels will
remain elevated for most products, Rappaport explains, but more stable with downside
potential 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 to
history and continue to yield record margins for producers. And while ethylene prices
could 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
400

05

06

07

08

09

10

11

12

13

14

15

16

U.S. Large Buyer Contract Ethylene

West Europe Contract Ethylene

Southeast Asia Spot Ethylene

South America Ethylene

Figure 1 The turnaround schedule


in the first half of 2014 for crackers
could affect spot pricing starting in
January as market players start
pre-building inventories.

IHS Material Price Outlook: A 2014 Buyers Guide

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

On Purpose Propylene Production, Million Metric Tons


35
30
25
20
15
10
5
0
2000

2002

2004

2006

2008

2010

2012

2014

2016

Ex Dehydro - PDH

Metathesis

Olefin Cracking

Via Methanol: CTP

HS FCC

Others On-Purpose

2022

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 pricing
Propylene
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 2014
Butadiene
Recent high prices coming down early in 2014 as supply improves
Continuing volatility will plague rubber prices until on purpose capacity arrives

Figure 2 More on purpose


production will drive global
propylene capacity growth

IHS Material Price Outlook: A 2014 Buyers Guide

Base Metal Markets: Range Bound


As 2014 comes into view, companies buying aluminum, copper, and nickel should
collectively 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. We
believe, however, that production costs will limit any substantial downside moves from
this point. But the upside is also capped. Relatively sluggish demand growth coupled with
ample capacity or high inventory levels look to restrain any upward price moves. The
global recovery is on track, but its slow and sluggish, says IHS Lead Nonferrous Metals
Analyst, John Mothersole. Theres a bottom forming right now with a mild uptick in
pricing expected as we move through 2014.
Global Metal Consumption Growth
(Combined

Al, Cu, Ni, Pb, Zn, percent change)

12.0%

8.0%

4.0%

0.0%

-4.0%

2000

2002

2004

2006

2008

2010

2012

2014

Figure 3 No return of the


Supercycle prices look flat 25%
below their recent peaks

Global nonferrous metals consumption growth remains relativity modest, with China
being 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 therefore
not likely to show the same strength in metal consumption that characterized the middle
of the last decade. The chart below illustrates this and suggests a different demand profile
going forward.
IHS Index of Primary Nonferrous Metal Prices, 94-95=1.0
3.0

2.6

2.2

1.8

1.4

1.0
2004

2006

2008

2010

2012

2014

Figure 4 Chart: Consumption growth


improves, but remains modest in
2014.

IHS Material Price Outlook: A 2014 Buyers Guide

Aluminum, which remains in a large surplus condition, is plagued by a huge inventory


overhang. Perversely, the physical market exhibits a degree of tightness because much of
this inventory is locked up in so-called financing deals. These financing deals are essentially
arbitrage plays that take advantage of the large difference between forward and spot prices
right now. Higher interest rates would end this carry trade and release metal back onto
the market, dampening prices. At the same time, however, softer prices, which are already
below costs for many producers, would force production cuts, narrowing the markets
surplus and setting up price increases. Aluminum prices are unsustainably low right now,
says Mothersole. Theres nowhere to go but up.
Nickel prices another market currently oversupplied will fluctuate in a fairly narrow
range during 2014. Nickel prices are also below production costs right now, Mothersole
explains. That limits any downside move, but it will also be difficult for nickel prices to
move up even modestly given market conditions.
Copper is our one exception next year prices should fall steadily across 2014. The reason
is a growing surplus based on continuing strong growth in mine production. Current prices
are well above production costs, meaning the downside in copper is potentially large if
there is a substantial inventory build during the year.
While fundamentals do differ, as a group, non-ferrous metal prices in 2014 look to move
sideways, according to Mothersole
Copper/Aluminum price ratio: copper still looks rich even
after next years correction

4.0

Nickel Inventory, thousands of metric tons


275

3.5
250

3.0

225

2.5

200

2.0

175

2015

2005

1995

1985

1975

1965

1955

0.0

1945

100

1935

0.5

1925

125

1915

1.0

1905

150

1895

1.5

75
2000

Figure 5 market looks well supplied


with prices falling well below $6,500/
mt next year
2002

2004

2006

2008

2010

2012

2014

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 deals
and lower premiums
Changes in LME warehousing rules slated for April may also have the same effect
Copper
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/mt
Nickel
Like aluminum, prices are unsustainably low
But also like aluminum, another surplus in 2014 and high inventory limit the upside

Figure 6 Nickel inventories are


at record highs with a rising
coverage ratio

IHS Material Price Outlook: A 2014 Buyers Guide

The Steel Markets: Good News for 2014, but Danger Lurks
Organizations shouldnt feel pressed to buy steel right now or through much of 2014,
that is unless they want to lock in todays prices with the knowledge that costs could
jump slightly over the next few months. Prices on steel should be flat in 2014, says John
Anton, Director of the IHS
Steel Service within the
Pricing & Purchasing group.
Europe
Other
North
Companies that lock in
Asia
America
now would basically be
mitigating risk; this is good
South
time to buy just to make
China
America
sure the climate doesnt
worsen.

Best

Worst

Credit China with helping


to keep steel prices at bay
over the next 12 months.
Mills in the country are
over-producing
to
the
point where the profit on an entire ton of steel equals a single bowl of rice. Theyre losing
money, says Anton. That lack of profitability could translate into a very different scenario
in 2015 as low prices cause mill failures and, subsequently, higher prices.
In specific ferrous categories, hot rolled carbon sheet remains in high demand in NAFTA
and China, but less so in Europe. Expect a slight price increase in late-2013 to retreat by
early-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 is
currently much narrower than normal, says Anton. Try to lock in current levels for
2014, especially Asian prices.
Demand for merchant bar will increase in 2014 in line with overall manufacturing trends
and as idle capacity remains rampant. Try to fight North American price hikes, Anton

Merchant Bar

Hot rolled carbon sheet

(Dollars per metrictonne)

(Dollars per metric tonne)

1100
1000

1000
900

900

United States
700

Europe

Axis Title

Axis Title

800

United States

800

Europe
China

China

700
600

600
500

10
20
11
20
12
20
13
20
14
20
15

20

20

2009 2010 2011 2012 2013 2014 2015

09

500
400

advises. In other regions, lock now if cautious and buy spot if you are daring. Concrete
reinforcing bar (rebar) should also see a spike in demand for 2014 also due to high levels
of idle capacity and a premium exists for this commodity sector, albeit not as wide as it
does for other products. Buy soon, says Anton. The price is low and the logical direction
is upwards.

IHS Material Price Outlook: A 2014 Buyers Guide

Due to an expected price increase of nickel, buyers should expect an increase in nickelbearing 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 prices
are sideways, so if you if youre not buying nickel-bearing stainless steel, you will be less
pressured to buy now. Theres less pressure on 400 grades than 300 grades. If youre buying
300 grades buy as quickly as you can. Right now, buyers are seeing the best prices theyve
seen since 2004.
Stainless

(Dollars per metric ton)


6000

Axis Title

5000

United States

4000

Europe
China

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 for
2014 and beyond
Beware of labor and electricity problems
in South Africa
Advice: buy ASAP

3000

2015

2014

2013

2011

2012

2010

2009

2008

2007

2000

Ferrous: Implications for Buyers


Sheet
Sit on your wallet until February or March, unless you are offered a full year at a
reasonable 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 supply
chain to a greater degree and at a greater speed than previous decades. Buyers can turn
turmoil into opportunity by buying on dips during volatile times. To achieve success at this
strategy, buyers must be actively monitoring weekly or even daily price movements where
possible.
The IHS Pricing & Purchasing Service enables supply chain cost savings by providing
timely, 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 future
commodity price swings. Understanding the characteristics of recent periods of volatility
can provide valuable guidance in how to face volatile times to come.

IHS Material Price Outlook: A 2014 Buyers Guide

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 for
thousands 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, and
input cost forecasts, IHS offers more coverage than any other provider in the market. IHS
has been supplying forecasts of key commodity, labor, and input costs since 1970 -- helping
define 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)

Chemicals & Plastics


(50 Prices)

Chemicals & Plastics


(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
+1 800 447 2273
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Aisa/Pacific
+81 3 4530 9703

Europe, Middle East & Africa


+44 (0) 1344 328 155

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