madfranks
17th February 2011, 05:40 PM
Link Here (http://www.marketwatch.com/story/precious-metals-weigh-on-manufacturers-2011-02-15)
Investors have been flocking to precious metals as a safe haven, boosting prices for the likes of gold and platinum.
But that's putting a squeeze on companies that use the metals in industries as varied as construction equipment and film making.
Precious metals tend to keep their value even as inflation and economic uncertainty hurt investments like stocks and bonds. That has fueled a flood of investment in exchange-traded funds, which track benchmark indexes, that are backed by gold and other metals.
"There's been a lavish courtship from the ETFs into this sector," says Jon Nadler, senior analyst at bullion dealer Kitco Metals Inc. At $1,828 a troy ounce, platinum is up more than 20% from a year ago. Approximately 20% of all consumer products—including cars, consumer electronics and pharmaceuticals—either contain platinum or require it for processing, Mr. Nadler says.
For its cement mixers and truck cranes, Terex /quotes/comstock/13*!tex/quotes/nls/tex (TEX 38.40, +0.10, +0.26%) Corp. buys engines with emissions-control devices containing platinum and palladium, the latter of which has nearly doubled in price from last year to $832 a troy ounce. As its engine suppliers face higher costs for the metals, Terex is bracing for higher prices when its contracts are adjusted this summer, says Timothy Fiore, senior vice president of supply management for the Westport, Conn., company.
Corning /quotes/comstock/13*!glw/quotes/nls/glw (GLW 22.96, +0.68, +3.05%) Inc. uses platinum and rhodium to line the melting tanks it uses to make glass for television sets and other consumer electronics. The Corning, N.Y., company has stockpiled $2 billion in metals, mostly platinum and rhodium, says company Treasurer Mark Rogus. Rhodium, which isn't traded on a commodities exchange, has fluctuated between $2,300 and $2,925 an ounce since early last year, he says. To reduce the risk of higher prices, Corning has entered contracts that pay around $2,300 an ounce for rhodium and between $1,400 and $1,600 an ounce for platinum.
"Our main objective is to provide certainty of the price, rather than speculation," he says. The company could take a hit, however, if either metal's price decreases below the prices Corning has locked in. "We'd love to get it cheap, but we're under no illusion that we can beat the market," he says.
Corning's researchers have been exploring ways to rely less on the metals or find substitute materials, but haven't had any luck, Mr. Rogus says.
The company has ruled out raising prices to its customers, who also are squeezed by higher costs and consumer skittishness. "We're under downward pricing pressure," he says. "Our ability to pass through higher metals-acquisitions costs is not something the market allows us to do today."
Silver prices have soared to more than $30 an ounce from $18 a troy ounce in the last year. Though the world has roughly a 5,000-ton surplus of silver, prices for the metal closed last year at their highest level in three decades, says Suki Cooper, a precious-metals analyst with Barclays Capital.
That is pinching the film industry. For every dollar increase in silver's price per ounce, Eastman Kodak /quotes/comstock/13*!ek/quotes/nls/ek (EK 3.72, +0.06, +1.64%) Co.'s earnings are hurt between $10 million and $15 million, says Brad Kruchten, president of the Rochester, N.Y., company's film group.
Kodak this year started indexing the price of its film to silver prices. "Customers in general don't like that," Chief Executive Antonio Perez told investors earlier this month. But he said customers understand the rationale.
Kodak also continues to enter hedging contracts on silver—essentially, insuring against sharp price increases—and is working to shift toward digital services. The company expects that will reduce the impact to between $5 million and $10 million for every dollar-an-ounce increase in silver's price.
Fujifilm Holdings /quotes/comstock/64e!4901 (JP:4901 2,979, -36.00, -1.19%) Corp. raised prices 10% on its silver-halide photographic paper and print materials in the U.S. The company also increased prices between 5% and 20% world-wide on photographic paper. The Tokyo-based company said surging raw-material prices on items like silver reduced operating income by 9.4 billion yen ($112.8 million) in the latest quarter.
Investors have been flocking to precious metals as a safe haven, boosting prices for the likes of gold and platinum.
But that's putting a squeeze on companies that use the metals in industries as varied as construction equipment and film making.
Precious metals tend to keep their value even as inflation and economic uncertainty hurt investments like stocks and bonds. That has fueled a flood of investment in exchange-traded funds, which track benchmark indexes, that are backed by gold and other metals.
"There's been a lavish courtship from the ETFs into this sector," says Jon Nadler, senior analyst at bullion dealer Kitco Metals Inc. At $1,828 a troy ounce, platinum is up more than 20% from a year ago. Approximately 20% of all consumer products—including cars, consumer electronics and pharmaceuticals—either contain platinum or require it for processing, Mr. Nadler says.
For its cement mixers and truck cranes, Terex /quotes/comstock/13*!tex/quotes/nls/tex (TEX 38.40, +0.10, +0.26%) Corp. buys engines with emissions-control devices containing platinum and palladium, the latter of which has nearly doubled in price from last year to $832 a troy ounce. As its engine suppliers face higher costs for the metals, Terex is bracing for higher prices when its contracts are adjusted this summer, says Timothy Fiore, senior vice president of supply management for the Westport, Conn., company.
Corning /quotes/comstock/13*!glw/quotes/nls/glw (GLW 22.96, +0.68, +3.05%) Inc. uses platinum and rhodium to line the melting tanks it uses to make glass for television sets and other consumer electronics. The Corning, N.Y., company has stockpiled $2 billion in metals, mostly platinum and rhodium, says company Treasurer Mark Rogus. Rhodium, which isn't traded on a commodities exchange, has fluctuated between $2,300 and $2,925 an ounce since early last year, he says. To reduce the risk of higher prices, Corning has entered contracts that pay around $2,300 an ounce for rhodium and between $1,400 and $1,600 an ounce for platinum.
"Our main objective is to provide certainty of the price, rather than speculation," he says. The company could take a hit, however, if either metal's price decreases below the prices Corning has locked in. "We'd love to get it cheap, but we're under no illusion that we can beat the market," he says.
Corning's researchers have been exploring ways to rely less on the metals or find substitute materials, but haven't had any luck, Mr. Rogus says.
The company has ruled out raising prices to its customers, who also are squeezed by higher costs and consumer skittishness. "We're under downward pricing pressure," he says. "Our ability to pass through higher metals-acquisitions costs is not something the market allows us to do today."
Silver prices have soared to more than $30 an ounce from $18 a troy ounce in the last year. Though the world has roughly a 5,000-ton surplus of silver, prices for the metal closed last year at their highest level in three decades, says Suki Cooper, a precious-metals analyst with Barclays Capital.
That is pinching the film industry. For every dollar increase in silver's price per ounce, Eastman Kodak /quotes/comstock/13*!ek/quotes/nls/ek (EK 3.72, +0.06, +1.64%) Co.'s earnings are hurt between $10 million and $15 million, says Brad Kruchten, president of the Rochester, N.Y., company's film group.
Kodak this year started indexing the price of its film to silver prices. "Customers in general don't like that," Chief Executive Antonio Perez told investors earlier this month. But he said customers understand the rationale.
Kodak also continues to enter hedging contracts on silver—essentially, insuring against sharp price increases—and is working to shift toward digital services. The company expects that will reduce the impact to between $5 million and $10 million for every dollar-an-ounce increase in silver's price.
Fujifilm Holdings /quotes/comstock/64e!4901 (JP:4901 2,979, -36.00, -1.19%) Corp. raised prices 10% on its silver-halide photographic paper and print materials in the U.S. The company also increased prices between 5% and 20% world-wide on photographic paper. The Tokyo-based company said surging raw-material prices on items like silver reduced operating income by 9.4 billion yen ($112.8 million) in the latest quarter.