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 Replies: 28 / Views: 4,556 |
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Pillar of the Community
 Canada
3692 Posts |
@trdhrdr007: Thank you for your post. An interesting angle about the reduction in labor costs due to less training needed. Construction would have that effect if we had a viable concrete "Lego". That's a factor I didn't quite think about initially.
@yeahyeah: You can always use knowledge as leverage to get a reduction in price, therefore secondary markets don't /always/ follow the spot price. I could also pull a bullion heist, therefore paying negligible startup costs. But back to the point: Please reread my original post again. Please reread my original post again. PHYSICALLY work with metals, not investing. Thank you. "Trading" isn't the same as working with your hands, being truly intimate with the element. I'm open to discussion if it's relevant to the topic, but yeahyeah, I'm wasting too much energy with your posts.
It would also be nice if everyone could give a timeframe of when these changes occur and the timeframe of when you were in your chosen profession (as exemplified by trdhrdr007 and Jenger).
Paraphrased: "It's supply and demand, it's so simple to understand." ............. If I knew it were that simple I wouldn't start this topic at all.
Thanks to the great responses so far. Whatever little insight you can share with the rest of us it helps heaps.
Edited by Libertad
12/10/2013 12:12 am
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Bedrock of the Community
13014 Posts |
Quote:
That's exactly my problem. I see where you're coming from now. Enlighten me because I think I'm thinking backwards. I think the mistake may be in where youre assigning the value in the final product. A couple good analogies would be a meal at a restaurant or the draft contract of a professional athlete. At the restaurant you arent paying 25 dollar because youre getting 25 dollars worth of food, youre paying for the work thats done to it. You could go buy that 20+ dollar steak for half that price and grill it yourself, but if they charged cost we all know how that would turn out. Just like a pro team isn't giving a college kid millions because they think he can step in right away and help the team, rather theyre paying for what they think he will become. The metals are really the same. They have their spot value not because of what they are, but because of what they can become. A block of copper is pretty worthless if thats all you do with it, but in the right hands it could be piping, or a liquor still as a couple examples. If it couldnt be turned into those useful things no one would think twice about it. At the same time just because a good still may cost you 10k or more that doesn't mean that copper itself has a greater value until the work has been put into it to make that still. Its a lot like a 8k platinum ring, theres not 8k of platinum in it but the work thats done to it can make it worth that. Anyone can get the copper for the still or the platinum for the ring, but very few people could craft the final product themselves. It like how a bullion Maple or Eagle will cost you somewhere around 25 right now. That extra 5 or so dollars isn't that spot changed, rather you have to pay for the manufacturing of the finished product and the logistics of getting it to market as well as the profit for everyone who it passed through. Quote:
The fundamentals of metals aren't enough to warrant the use of one metal all the time so you're going to look for another way around the problem, which affects the market, no? If we stopped using gasoline for cars in favor of something else (cheaper or cleaner/more productive) would gas be the same price? I say no. Youre right about the fact that with no demand price does fall. Weve been seeing that with aluminum. I used to be able to sell bags of cans I would save since it was free money for almost twice of what they get now. Alcoa has been brutalized on the stock market partly because of the falling price of aluminum the last couple years. At the same time though increased demand doesn't necessarily mean much higher prices. Everything has a ceiling price where it wouldnt be worth it to use it anymore. Like mentioned, copper piping is being replaced in a lot of things now with a cheaper material. Were even seeing more and more companies making aluminum range ammo now as a cheaper alternative to traditional metals. Technology will continue to produce cheaper new materials and robot factories will drive the cost of manufacturing final products down over time. The bad side of that is robots replace human jobs, which is another issue entirely. The important part though is for price to significantly increase there has to be enough demand to stress the supply or outside forces have to be a supplier stressor. Some metals certain countries have a relative strangle holds on the overall supply which will make them more expensive to begin with. A single incident would stress that supply, where something that's mined all over the world someone else can pick up the slack. In the case of silver yes industrial demand has increased, but at no point has there even been the thought that we may not be able to fulfill the need. Its also mined all over the world and we know of places that could be opened if necessary. Its also abundant enough you could start melting things for it. Platinum on the other hand is a different story. If there was a real need for it and the rest of the world said they werent giving it to North America anymore, wed kind of be up the creek without a paddle. TRD also brought up a good point about how with Silver the biggest price increase was from the ETF stock purchases of it. Around when those were created was when it really took off. The two major price increases in the last 80 or so years havent resulted from industrial use of it, rather it was people seeking a short term safe haven from other uncertainties/investment stockpiling. There certainly have been metals that have had a soaring price from industrial usage (Rodium I believe was used in cars at one point then became several thousand an ounce and was replaced) but with silver it was more of a coincidence for the timing of everything. He also makes a great point about how as that stock pile gets sold off you have an abundance released into the market. Electronics had been taking off for quite some time. My personal feeling would be that the 6-10 dollar range is likely more where industry would have put it from a higher profile with new uses. Its true that prices are currently falling, but at the same time theyre still way above what they were before the investment run up of the price. So while its not 30-40 an ounce anymore, its still almost 4 times the 4-6 it was jumping between when things were going good. The one commodity that really plays by its own rules would be oil. Literally anything else is replaceable or could be done without. Oil though literally runs the world so the slightest indication that it will be harder to get and prices sky rocket. Aside from fuel its unbelievable all the day to day products that are made from it. I only mention that just because I wouldnt use it as a comparison for anything else, it really does sit on a pedestal all by itself. Sorry for the long winded reply, hopefully that makes some sense. The cliff notes version is basically that the metals are valuable because of what they can become. The sale price of a finished item though is only based on the metal for what they had to pay to acquire it. Once you subtract the spot price the extra cost is a combination of the labor, logistical side of business, profit, and market demand. Generally more demand will support higher price points. Edited by basebal21
12/10/2013 12:12 am
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Moderator
 Australia
16849 Posts |
Quote:
Everything has a ceiling price where it wouldnt be worth it to use it anymore. This is true for many applications, but for some applications, the physical and chemical properties of the metal in question are uniquely suitable and no substitute process has yet been invented. I am an analytical chemist. Some of the chemicals I work with are made from precious metals. Silver nitrate, for example, is one I use in small amounts fairly frequently. A 500-gram bottle of analytical-grade silver nitrate currently costs US$997 from a major chemical supplier. This is, obviously, far in excess of the compound's "silver bullion value" (500g of AgNO3 contains 10.208 troy ounces of silver, US$202 at current prices). The chemical company clearly puts a lot of effort into ensuring the compound is 99% pure and this is reflected in the price. Even if the price of silver itself crashed to nothing, my jar of silver nitrate would still cost me $800 or so to buy. So rising or falling bullion costs have very slight impact on my industry, even though I work directly with the chemicals. We recently increased the cost of a certain analysis which we routinely perform, that requires the use of silver nitrate, from $35 to $35.50, based purely on rising bullion prices. Don't say "infinitely" when you mean "very"; otherwise, you'll have no word left when you want to talk about something really infinite. - C. S. Lewis
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Pillar of the Community
Canada
3692 Posts |
Chemistry is for sure one of my weaker points. I'm more of an alchemist. :)
Another factor that I thought of is the price of tools or materials that relate to the working of the metal. Like the other components of the silver nitrate. If their prices were to shoot up, would it be enough for the manufacturers to just say, "as unique as this product is, it's simply too expensive to produce at this point and you're unfortunately out of a job until the prices settle down." ? Sap, you say that rising bullion prices wouldn't affect your product, but is that really true? Supposing the world needed silver nitrate for something even more important than what it's used for now and had to be mass-produced but the price is just too high for most people? What about a tax?
I also thought of environmental impact (lead, cadmium, mercury). Like the use of lead in ammunition. I always thought lead was used for bullets because it was heavy and cheap. If gold only had more uses it would replace lead pretty fast, but it is so versatile in art and very forgiving (when compared to silver) which is why it costs so much (same with diamonds because of their unique properties - they are MoHs hardness of 10). If it were cheap, everybody and their uncle would be a goldsmith overnight and just WASTE the gold that's around on really crappy "art". Anyways, I would think that aluminum would be too light for bullets and would veer off-course? Sorry if that's off-topic but I found that interesting.
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Pillar of the Community
Australia
3831 Posts |
I think before we read too far with regards to demand, there is bigger picture to supply.
The biggest constraint to the mining industry is the prices of fuel and labour cost that affect the overall cost. Especially on sites where high capital cost is involved just with machineries in particular dump trucks, trucks alone use 6000 - 8000 liters per day (1500 - 2000 galleons). Increase that by one cent and multiply that on the number of trucks and then to the overall cost production. Adds up very quickly and you have no means of bring the cost down.
On top of that, what many don't realize is that during the mining boom in particular Australia, a lot of mine sites opened up sites that were once abandoned due to unprofitable low grade ore. A lot of capita went in to restart these projects. At the same time, oil prices wee not as expensive as today. With depressed commodity prices, it forces a lot of companies to lay off workers and shut operations down.
To give you an insight, a gold mine that I visited many years ago when oil price at 50 USD / barrel and gold was at 700USD / ounce - this mine was mining gold at 1.2 - 1.6g / tonne. To them, this is classfied as "higher" grade core. When gold prices shot past 1300USD / ounce and oil price is at 80USD / barrel, they were feeding gold at 0.6g / tonne because this is profitable. Currently this mine site is struggling as operational cost is said to be around 1200USD/ounce of gold.
Personally if you ask me what's messing with prices up these days - it's fuel prices and speculators / investors. Adds up very quickly to any operational cost and regardless of how much more fuel efficient engines may have become; it's not like fuel efficiencies have increased by two folds. This affects from the bottom of the chain from transporting equipments, processing minerals to the transportation of raw materials. I remember the time when fuel was 50 dollars / barrel - it's essentially double that over ten years, which is significally higher than the inflation rate. I also did remember arguing with my friend who worked in an investment firm who at one stage believed that oil prices should go up to 150 - 200 dollars / barrel due to supply constraint. I said that this will not work in favor for the global economy which I believe it still stands true today. Imagine adding another 50% to your fuel purchases and another 20% on top of your grocery bills.
If you can make engines run on something other than diesel and is the overall running cost is cheaper than today's fuel prices, you will be a billionaire.
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Pillar of the Community
Canada
3692 Posts |
@gxseries: Diamonds are a lot like that only worse. DeBeers controlling the vast majority of the world's distribution of diamonds. The market is so tightly controlled and it's super-tough to get a "sighting" with the major players, and you MUST accept the package they give you in full or you're cut off. http://www.edwardjayepstein.com/dia...prologue.htm (Amazing read for anyone interested in African diamond history). So the manufacturers have no say in their costs anymore and it's the customer who pays the final price. So, oil is a huge factor here at play. One of my masters told us to watch the price of gold after a spike in oil, which makes sense for mined gold, as it must be moved around. I think fear is major factor in investor demand. It's pretty sad to see mines only output as much as they need to survive simply because of an inflated price. On the one hand you have an increase in profit at a decreased production rate, which is a plus, but isn't that an attempt to keep supply thin to keep the price exaggerated? @basebal: I forgot to ask you, what is your occupational background? :) In recent years, even Tiffany has been selling silver by the truckload. The big names always get in tune with what the market can bear for shiny "preciouses". Be it platinum, palladium, gold, palladium white gold, nickel white gold, green gold, rose gold, purple gold, Japanese alloys, foil, plating, gold filled, sterling silver, fine silver, argentium silver...et cetera, there are so many options. One really must be on the cutting edge of technical innovation and fashion trends to survive in this cut-throat business. Competition is FIERCE and China isn't helping. I know a jeweler (20 years in the biz self-employed) whose business has been suffering in the last half decade due to rising silver prices and Chinese influence over costume (cheap imitation/"bridge") jewellery over the years. Their influence on importing goods, as everyone knows, is all-consuming, like a sponge. Do I think that the prices are justified in my industry? I'm 50/50 on this because each has their advantage. I would love it if silver could agree on a price and stick with it. The thing about fine jewellery is that it must have a perceived value in order to justify its price. That's where workmanship and gems come into play. I like low silver prices because it encourages the youth to buy more (they spend money like crazy when they're hooked on something) AND it allows artists to experiment more with the metal itself. A poor (in income) artist who is a natural benefits from this. A non-skilled artist will play around too much and waste the precious metal. A balance is needed. A lower silver price gets that art into the hands of lower income persons, which I fully support. Some direct environmental impacts on my industry: the switch from flouride based flux to something safer (and it's still poisonous to digest), cyanide used in plating, cyanide used to mine gold, use of ammonia and other harmful vapors (like ammonia plus bleach equals skull and crossbones), safe disposal of chemicals like acids, switch from cadmium based solders to silver solders, one gram of lead can eat away at one kilogram of pure gold (not something I've put to the test for obvious reasons), terrestrial upheaval (mining gem-quality stones, mining metals), use of natural gas/propane/acetylene/oxygen tanks and hookups, "liver of sulphur" can be fatal if used improperly, etching acids will eat up metal around it... I'm sure there's more. The implication is that there are companies that invest money into creating products that are safe for the environment and effective for their industry. 3M is an amazing company, it has my utmost respect. In sum, some of my factors that are price related are: oil for delivery of goods, natural gas for fabrication/manufacture, consumer desire/demand and budget, profit margins obviously, education (one must educate the customer so that they fully know the quality they receive over costume jewellery), technique/s used, perceived value, environment ("green studio", ethical mining), fashion trends (e.g. the year's "official" color...lol, I know I know...). And I'm discovering more all the time. Edited by Libertad
12/13/2013 10:00 am
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Pillar of the Community
Australia
3831 Posts |
Libertad - there is a reason why mines can only produce so much at once. When you talk about trucks, they are easily in terms of 5 - 10 million dollars and a single tyre at 100,000 USD each - these are not cheap at all. Labour cost for an operator is also around 100,000USD and they work about half of the year. Not too sure what the rest of the world's labour cost is like but the cost of trucks and tyres are around the same globally. A mine can't just crank up production without significant amount of investment. At the same time, even if you had the money to burn, it takes time to transport such heavy equipment. A truck is easy. But if you are looking at gears such as a dragline, you are probably looking at least 6 months minimum to disassemble and reassemble. It's not a matter of "oh yeah, we'll get another truck in to increase production by x amount" - there is HUGE capita upfront.
Whether you wish to classify commodity prices as inflated or not, I need to remind you that while labour cost is high as well as the other equipment prices associated with it, this is a job where one need to travel to a remote area which can have social implications. This is not a job for everyone.
There is a reason why mining companies can't just look at maximizing profit. We'll simplify the scenario and have two seperate stockpile - high grade and low grade ore. Given when commodity prices are high, you would think that you want to process high grade ore and dump the low grade ore to maximize profit. However, the geology of the mine essentially dictates how engineers have to design and plan to mine it as throughly as possible for maximum recovery. When commodity prices drop, you would hope to have a stockpile of high grade ore. However, this may not be possible at all times. Therefore if you do have two seperate stockpiles and when commodity prices are high, you want to reserve the high grade ore at times when commodity prices collapse for a more stable cash flow. Just to make it clear, this is a very simplified example. While this applies to most mineral commodities, this does not apply to diamonds, rare earth metals and gas / oil due to the marketing nature. I do have my opinion on diamonds but we'll leave that aside.
Also, this will make feathers fly but I personally point out investors at times do have unrealistic expectations of rate of return and they will anything to get their funds. This includes slashing and burning the long term aspect of an operation. This could mean getting rid of staff (demoralizing whoever that's left), selling assets which ultimately means a reduction of production down the line. I can keep on rambling but I'll stop at that.
Finally but not least, I did forget to mention that political situations / decisions can make a big difference for the survival of a company. And before I go on any further, I want to make it clear that I have no intention of making this a political discussion but just pointing out historical political situations that impacted businesses. For instance in Australia, the previous government decided to slap a huge carbon tax as they believed this will help to plug a lot of debt holes. This was during the time when a lot of commodity prices were at their all time high so companies could afford it. However it did hurt a lot of mining companies and this year in particular when prices fell downwards, some companies have decided to shut their operations down and did mention that carbon tax is not helpful. In response, a newly voted government claimed that he will have it repealed. (This is one of his key points he promised to the public prior to election). Zimbabwe is also another prime example. I do not remember the names off the top of my head but during the height of the mining boom, the Zimbabwe government decided to raise mining taxes to essentially 50% of all mining companies profit. Yes, that's right, HALF. A lot of companies rebuked - I don't remember what happened after that. Therefore, such adhoc political decision can just throw any business out of whack and unfortuantely as the general public have a tendency to only read profit that goes in "millions" and think mining companies have too much money, they fail to realize the huge capital cost, obligations to investors and further investments in other projects as all mines have a limited life span.
Guess that's all for now.
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Pillar of the Community
Canada
3692 Posts |
Thanks for your valuable input, gxseries. And re: diamonds, you're not going to offend me if you hate diamonds. I dislike them, too, believe it or not.
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Valued Member
United States
493 Posts |
The whole metals process is immense and long. For instance, over not so many years, old copper phone networks will be obsolete and dismantled, good metal lasted a long time. Fiber optics is the new thing.
So, technology has a way of putting itself out of business. Recently we went electronic, and now digital, fueling demand for metals this last 20-30 years. Eventually here, electricity grids will be upgraded in a big way. If we ever push for the free sun power to again .. free us from something else like carbon, only time it will take, moving that electricity from the equatorial areas efficiently where it's abundant is going to be a feat.
Big wars changed the metal dynamic over the years, today hardly anyone recycles iron, only recently did landfill operators figure out that carpeting and oil based products fill up the landfills really quick, and that oh .. it's recyclable.
Agree, that we had one heck of a mining cycle this go around, supposedly they go in ten year cycles.
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Pillar of the Community
United States
4333 Posts |
@Everything - the old telecom copper will be around for a lot longer than you think. Fiber is not a new thing, and the transition will be to completely wireless. I've been employed directly by the largest telecom co. in the world, and in 18 years as a lineman, I've never once worked on an optical network, we just don't use it due to cost.
This country is going broke. There is no money to upgrade the vast electrical copper grids. Solar power is wonderful, unfortunately, the cost of solar power is not practical, at least not in my area.
When I listen to LED ZEPPELIN...so do my neighbors...
Roll hunting since '77
Dirt fishing since '72
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Pillar of the Community
Canada
3692 Posts |
@everything: What's your line of work?
And by "Big wars changed the metal dynamic over the years, today hardly anyone recycles iron", to what are you referring? What I've noticed is that during times of war, nickel disappears from circulation. I'll use Canada as an example: the nickel nickel first appeared in 1922, after gold from 1912-1914 and silver coinage up to 1921 were recovered from circulation to pay off costs incurred from The "Great" War. Then nickel coinage disappeared from mid1942-1945 for World War II, came back, and then had another hiatus from 1951-1954 (only a thin layer of nickel used so that the chromium could "stick" well) presumably for the Korean War. Then a "soft" recovery of nickel was from 1982-1999, but now an almost complete (still needed for the plating process) recall on nickel from 2001 on, the start of the Afghanistan War. Nickel is a strategic war metal, no? We haven't seen nickel being minted since the start of this whole world mess we're in, and it's being recycled like crazy right now - long after its price's high a few years back.
And did you mean to say from analog to digital? We still use electronics...
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Valued Member
United States
493 Posts |
I guess maybe big wars have fueled metal demand immensely. I guess regarding iron I meant it is not worth it to recycle, I see that lying around more than anything. Nickel, the war metal, here is the closest one to where I live, and older article but shows how long/much it takes to bring a conventional base metal mine up. http://www.miningjournal.net/page/c...tml?nav=5006 |
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Pillar of the Community
Canada
3692 Posts |
Bumping this up for new members who haven't seen this... Needing expert opinions...
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Replies: 28 / Views: 4,556 |
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Posted 12/10/2013 12:11 am
