ArrowHead Solutions – Metals and Other Commodities

ArrowHead Solutions Help Clients Understand Metals and Other Commodities Markets to Aid Their Decision Making

ArrowHead Metals and Other Commodities Solutions Help Clients Understand How Potential Market Events Impact Their Businesses

There are a number of commodities outside the traditional energy sphere (oil, gas and power) that entail significant upstream development, operation and transport; midstream processing; and downstream consumption decisions, such as:

Many of these commodities have not received economic or analytical attention commensurate with their risk, return, and importance. Just as with power, gas, and oil, companies in these industries have the same types of requirements for understanding future commodities to help inform decisions and to analyze the impact of potential issues on the markets and their businesses. What is required is a technology to model these commodity markets so all that is needed is to assemble and input a data set to the model (nodes for the market structure and the operational characteristics for each node) to get a cogent, comprehensive, economic market representation.

Examples of issues in these commodity markets:

• Lithium: China has taken a significant position in lithium midstream and final processing. With a large portion of the world’s production going through China’s refineries, could China exercise market power by virtue of market concentration? Government has considered China to be a “pinch point”, a reason to elevate lithium to a “strategic material”. Is it profitable for people to enter the lithium market to attempt to capitalize on high price or can the agent with market power imperil the profitability of new entrants? Southern South America also has strong concentration in lakebed leaching of primary lithium chloride. Could they exercise market power? How would their market concentration interact with China market concentration in the midstream and downstream? What prices for lithium chloride and lithium carbonate are we going to see regionally throughout the world? What sorts of restrictions, if any, are we going to see with key consumers of lithium for batteries or defense uses in the U.S.? Europe? Asia? What affect could increased demand for lithium batteries have on global market price for lithium?
• Steel: Iron pellets and steel have internationalized. What price for primary ore will we be seeing everywhere in the world over the next 1, 5, 10, 20 years? What prices for delivered pellets will we be seeing everywhere in the world over the next 1, 5, 10, 20 years? When and where will blast furnaces be operating, and what will be the price they get for their output? What will be the price minimills get for their output? Will direct reduction at the mine-mouth grow to bypass blast furnaces in favor of minimills? How will that affect pig iron and other prices? Are large producers such as China discounting or dumping? Does that make money for those players? Will slack capacity in industrialized countries fill up again, or will other countries take over the load?
• Copper: Copper prices are at historical highs, and new copper mines are being contemplated and developed. Where will the price of copper go in the future? Will it remain high enough to attract entry? Alternative, will all the entry begin to depress the price of copper down from present levels? Will the demand for copper continue to grow (e.g., conductors)? To what degree will recycle depress sulfide and oxide prices? What if lower cost leaching of sulfide ores came to the fore? How would that affect smelting profitabilities and viability? How would that affect finished copper prices?

As in energy, companies also need help with specific types of issues or decisions, such as:

• Valuation and Profitability
• Market Price and Issue Assessment
• Asset Development and Financing
• Trading Risk and Hedging

How ArrowHead Metals and Other Commodities Solutions Help

ArrowHead is able to build complete, correct models of these commodities in about 2-6 weeks and provide clients with definitive market results. The ArrowHead technology enables this high speed of delivery. The task required is merely to load the ArrowHead model with the relevant world or regional supply chains, nodes, and data. There is no math or programming needed; that’s already in place in the ArrowHead model. It is a question of inputting nodes and numbers.

With ArrowHead’s models, our consultants calculate probability distributions over prices and quantities across the decision time frame needed. Clients can have ArrowHead use our assumptions and probabilities, or their own. It is easy to adjust models to reflect any of the conditions, events,  or issues summarized above. Then, in a single model run, using probabilities for each of the market assumptions or issues that must be explored, the models calculate the probability distributions over prices and quantities needed to answer questions and understand issues as those posed above. Not only does the ArrowHead model provide an accurate representation of market behavior under various assumptions, but it also accurately applies the calculations for the various probabilities in an integrated fashion in a single run. Arrowhead consultant, ArrowHead has relationships with experts/consultants in the disparate commodities. ArrowHead and its consultants help clients analyze model results, apply them to specific decisions, or understand how certain events would impact the commodity markets and their businesses.