‘Swiss Made’ may mean more expensive now

After this week's drastic policy adjustment in the exchange rate between the franc and the Euro by the SNB, now comes the fallout in the terms of trade between Switzerland and the Eurozone reported here at The Indian Express:

Swiss Made has traditionally stood for quality, precision and reliability. But after a shock move to scrap the cap on the franc, it could convey a less attractive message: Made more expensive. 

The decision by the Swiss National Bank, after three years of holding down the franc’s value, was met with indignation by many small-to-mid size companies which now face lower revenue from exports. 

“I trust you have a strong plan that will help all of us in the long run,” Edouard Meylan, chief executive of watchmaker H. Moser Cie wrote in a scathing open letter to the SNB President Thomas Jordan, saying he had already received calls from retailers cancelling orders. 

Nicholas Ebisch, currency analyst at Caxton FX, said Swiss companies’ products were now between 10 and 40 per cent more expensive than earlier in the week due to the SNB’s move. 

Medical technology companies — another niche area where Switzerland excels —are also expected to feel the pain. Dental implant maker Straumann could be one of the worst affected, since almost two-thirds of its production costs are in francs, according to estimates by analysts at Sanford C. Bernstein. In contrast, 40 per cent of its sales are in euros.

So let's see if the Swiss exporters respond to this new exchange rate policy at the SNB by reducing the cost of their wares in Euro terms in order to maintain previous unit sales levels.

And then further, if this potential move by Swiss exporters of reducing the price for their wares in Euro terms will then have a follow on effect of weakening the Swiss currency back towards where it was before the removal of the peg at the SNB.

Neil Wilson has a nice post over at 3Spoken here that goes into the general dynamic aspects of these types of import/export transactions and identifies the different entities that participate in these commercial activities.

Using the emerging Swiss/Euro situation as a real world example, we may be able to assess what would be in the self-interest of these entities participating in these transactions and hence what may happen to the currency exchange rate of the two nations engaged in the trade when prices of their goods are greatly reduced by the exporters and the banks engaged in financing the trade have to respond to these price cuts in the exported goods.

No Happy New Year in the German Steel Industry

MEPS Intl. reports continued price weakness and an environment of increasing Asian price competitiveness in the German steel industry.

If anyone wants to remain in good Happy New Year's cheer, suggest don't read any further:

Hot rolled coil basis figures have softened in Germany, according to the latest report by MEPS. Expectations for next year are poor as the economy is not performing as well as anticipated. There is little confidence in the marketplace. The pipemakers report reasonable activity but their margins are being squeezed by growing overseas competition, particularly from China. 

In the commodity plate market, service centres are buying only what they need to cover immediate orders. They have been keeping inventories under control for some time and, now, many are destocking. Steelmakers are starting to lose some of the gains made at the end of the third quarter, partly due to intense import pressure. 

Distributors are pushing for cold rolled coil price cuts on the back of softening raw material costs. Domestic suppliers have reduced their offers. There has been no revival in demand. Construction-related demand for hot dipped galvanised coil is static. 

The auto industry is holding up, although sales of cars to Russia have dropped sharply in recent times. 

Basis numbers in the general market have succumbed to downward pressure, due to oversupply. Mills have maintained their low carbon wire rod prices again this month but customers are calling for decreases. 

Recoil values have succumbed to negative pressure from declining scrap costs. In addition, the finished mesh market is very competitive at present. Structural section sales volumes are poor where there is strong competition for the little business that is available. Nevertheless, suppliers have held on to prices during recent deals but some slippage could occur in the first trimester. 

The rebar market is very competitive. Buyers have successfully pushed for lower prices as scrap values continue to drop and further decreases cannot be ruled out in a climate of subdued demand. 

Steelmakers have failed to resist customers’ calls for merchant bar basis price cuts, for the third consecutive month. Purchasing activity remains cautious as buyers monitor the constant negative trend. There has been no recovery in business levels.

Wow this is pretty depressing... I don't see a major recovery in the EUR/USD until we see the general negative context of a diversity of European commodity reports like this do a 180; and European firms are in a power position where they are able to start increasing their real terms of trade with US firms.

Euro just hit a new 4 1/2 year low vs. the USD Reuters reports here.

(Reuters) - The euro fell to its lowest in 4 1/2 years against the dollar on Friday after the head of the European Central Bank fueled expectations it would take bolder steps on monetary stimulus later this month.

Battleground Home Depot: Now Germany fires back at Japan

Following up yesterday's announcement of discounting of the Japanese high-quality brand Makita tools, our European friends will not be outdone today; here slashing the prices on the Dremel brand of rotary tools by almost 50%.  Dremel owned by the German firm Bosch GmbH.

Today's #CyberWeek deal: Dremel Ultimate Corded Combo Kit for $129 (was $229)! Buy now & save! https://t.co/2IO03xG04v
— The Home Depot (@HomeDepot) December 3, 2014

Both the Euro and the Yen still sitting at recent lows vs. the USD..... hmmmmm.

Seems like the short term winners are the US tool consumers in this war between these foaming-at-the-mouth USD zombies in Japan and Germany.

More Yen weakness...

Look for continued Yen weakness as Japanese manufacturers keep lowering the prices for their goods in USD terms:

Today's Cyber Week deal: Makita 12-Volt Max Lithium-ion Cordless Combo, only $89 (was $129)! https://t.co/aJHTwCHkxY
— The Home Depot (@HomeDepot) December 2, 2014

FALLING RAW MATERIAL COSTS PUSH EU STEEL PRICES LOWER IN NOVEMBER

The newer European austerity policies in some of the largest national economies of Europe and economic sanctions against the eastern nations continue to take their toll.

Steel report at MEPS International, Ltd. which is probably indicative of the current price-setting environment for industrial output in Europe.  Based on this information, expect the continued Euro/USD currency weakness through at least November.

European flat products basis prices remain under negative pressure due to domestic oversupply, weakening raw material costs and flat demand caused by poor macro-economic conditions in several countries. Third country imports are, generally, unattractive as local offers are at similar prices, with shorter delivery lead times. However, there is a threat from Chinese steelmakers in the EU mills’ traditional export markets. 

Domestic producers would like to hold European basis figures steady as contract negotiations with large end-users, for the first half of 2015, are due to commence in the coming weeks. 

Basis values are largely unchanged in Germany. There is very little third country import competition because the US dollar is strong.  Moreover, there are few offers from Italy at present. Despite domestic steelmaker ThyssenKrupp’s production problems, there is no obvious supply tightness. Mill order intake has shrunk from non-automotive industries. Little economic growth is envisaged in 2015.  

The French market has deteriorated. Demand has slowed down, compared with last month. As a result, some basis values have slipped. On the distribution side, resale prices have fallen more significantly. Service centres, integrated with steel mills, are, reportedly, quoting very low offers. Imports remain limited due to the weakness of the euro. However, production inside Europe is plentiful enough to disrupt the market. 

Italian steel consumption is static at a low level, with very little sales activity. Most end-user sectors remain weak. The small improvement noted in the first half of the year has evaporated as demand decelerated in the second quarter. Some contraction is anticipated in the final trimester. Market sentiment is poor and any optimism has completely disappeared. Producers continue to offer price incentives.  

UK distributors report healthy levels of business, although a number of independent companies complain that Tata Steel’s stockholding outlets are selling quite aggressively as they try to regain market share. Service centre stocks are generally well controlled. Ex-mill basis values are stable at the level reported a month ago.  

The Belgian market is quiet. Over the last two weeks, we have noted some price erosion, albeit not sizeable. No major changes are anticipated by buyers because order placement will be slow as companies destock ahead of their financial year-ends. Both German and Dutch distributors are selling across the border at low prices.  

Spanish market players are less optimistic than a month ago. Any hopes of a price rise for the fourth quarter have been quashed by a lack of mill order intake. Buyers are in “wait and see” mode as they watch the effect that lower raw material costs may have on steel prices. Some producers are already accepting today’s basis figures for January/February rollings.

Expect more Euro weakness through at least November as European producers hold the line and/or reduce prices as they struggle to maintain international sales and market shares in the export industries of Europe.

The Chinese supply threat (I'd assume in the US market) mentioned in the first paragraph will put European producers at a decision point on whether they want to lower prices again from already lower levels in order to maintain export market share.  If the Europeans decide to fight aggressively on price to maintain US share, look for another leg down in the Euro/USD.

Its probably a good time in general to hammer any European suppliers and vendors one may have with the goal of obtaining additional price concessions.