Articles & Papers

The Minor Metals Conference 2003 Paper:

"Buying in warehouse - Getting clear title to bank financed goods - Beating the insolvency trap"

By: Robert Parson, Partner, Clyde & Co.

Can be viewed in Adobe Acrobat PDF format from here.

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MMTA

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10/7/2004

When I spoke to someone outside the Minor Metal Trade recently about what we all do, the various unusual metals in which we trade and their exotic uses, he said ‘It sounds to me as if you ought to call your business The Important Metal Trade.’

By the same token our Association would then have to be called the IMTA instead of the MMTA.

He had a point - the word ‘Minor’ does not really do justice to what we do. For we appear to be engaged in a trade which could rightly be said to have colonized almost all the other elements in the periodic table other than the six base metals and steel.

The question is - how do we - all of us engaged here at this conference - see the future of this, our minor or important metal trade, a business that has its roots in the oldest of trades and one which, at times, bearing in mind what we have to do to obtain business, has a lot in common with ‘the oldest’ trade?

What are the roots of what we do and are they still tenable in the modern world of high finance and internet auctions? How would Marco Polo have fared if he had had to put in blind sealed bids at the DLA for Cobalt or had to do credit checks on every customer?

As we soon approach the mid point of this troubling year, 2003, perhaps it is a pertinent moment to reflect upon some of the problems our trade is facing and which directions we could take?

It is perhaps just as well, also, that Metal-Pages asked an optimist to talk about this subject.

Let me start with our customers.

As a start, perhaps we need to understand a bit more about our customer’s problems before we can address our own.

I recently touched upon this matter in a Metal Bulletin article which was called ‘The Buyer’s Lot is not a happy one’.

I make no apology for referring to it again.

For us, as traders, the buyer, purchasing manager or procurement executive is our totem - he or she is, if you like, the unobtainable love object, who we engage in a courtship dance using every device to inveigle ourselves into the object of our desire’s favour so that they will ‘buy’ from us!

In some parts of the world, one of the tools for charming the buyer might be a game of golf - although I note this is said to be losing fashion in some quarters. In the City of London it used to be a lunch or an evening drink.

However, these days are gone and many metal merchants are finding our more serious times rather charmless.

In fact, going to a meeting with a customer today, can on occasions be more like a visit to the Doctor’s - and then finding that the doctor is more ill than you are.

So what are the problems facing the buyer today?

Here is a shortlist:-

• Our buyer is prevented by his corporate accountants and finance director from holding stock because it ties up capital, eats interest and hurts the bottom line
• Our buyer often does not receive sufficient internal information from other departments to predict buying needs
• Our buyer is inundated with corporate initiatives to reduce the cost of purchases in his department
• Our buyer does not have the time to study the markets upon which he depends
• Our buyer is under threat of being replaced by an internet auction

In lots of ways, therefore, the buyer’s problems have now become the trader’s problems.

Hearing the list I have just given, it might suggest that these should be very bad times for metal traders in general and minor metal traders in particular.

But, is this really the case and what does the future hold for Minor Metal traders? Need we really be so downhearted?

It is true that some things don’t look good for the traditional minor metal merchant. Let us just look at his profile for a moment. Most of the companies who trade minor metals are small privately owned companies, with owner occupiers like myself. We either use free cash to finance metal purchases and sales, or some transactional finance - but the days when banks would lend against stock have mostly gone. Of these existing companies, many were started in the 1970’s at about the time of the growth of the MMTA. Their directors and owners have enjoyed the fruits of the minor metal trade and are thinking of retirement. The changes in the way the metal trade is run encourage them in this view.

I recently rang a close colleague in a London metal merchant’s office, once famous for its long lunches, and was amazed to find him at his desk at about 1.30 pm. ‘What happened’, I said, ‘has there been a bomb scare and you’ve been cordoned off?’ ‘No’, he said, ‘there’s just no one left in London to have lunch with!’

In the 1970’s, of course, (when the MMTA was formed) the world of Minor Metal Trading was a very different place.

The Second World War had been left behind, there was a dollar crisis, then an OPEC oil crisis, followed by recessions and stagflations. It all produced volatility - the meat and drink of the metal merchant. At the same time, the white heat of Prime Minister Harold Wilson’s technological change was indeed bringing new applications and uses to metals hitherto discarded or ploughed back into the earth.

These were the times when it was fun to be in cadmium, mercury, bismuth or antimony and, sadly for me, it was also before my time so I missed the entire period.

Then, China & Russia were communist and centrally planned. Organizations permitted to trade minor metals in those countries were state run. Communication was by telex, cable or crackly phone line. Trade Fairs actually brought new relationships and new business. Timely and accurate information could give a trader a lead over his rivals.

Today, due to the events of the early 1990’s, the two large state blocks have gone. The Soviet Union has been dismantled and, where there was once a unitary state, there are more than one hundred new Republics, each with differing laws and systems.

In China, during this same period, all regions have also become more autonomous. Hong Kong is no longer ‘the gateway’ but just ‘a gateway’ and a proliferation of entities, private traders and counter-parties have mushroomed who are all doing it ‘their way.’ In South Africa apartheid was dismantled but also the dominance of unassailable white interests in the mining & smelting sector were diminished. In the U.S. things changed in a different way. When I first started out in the metal trade, the U.S. used to produce at least 1 mln tons of copper. Today its great copper companies have become mainly South American miners, reducing their presence in the North and decreasing their unit costs.

Huge sweeps of change have overtaken the metal supply industry in the last few years and undoubtedly more will come. So why are there so many long faces in our minor metal trade these days?

Perhaps the reason is that, in some senses, the trade was quite simply easier to conduct when trade was undertaken with the two great monoliths of the old Soviet system and the communist system in China. Their system was in a way aped by ours. They had a set of rules so we made a set of ours and we called them the rules and regulations of the Minor Metal Trade Association. In some senses it was not unlike the early days of writing the rules of Cricket - something that this country is quite good at. By making some rules and asserting their primacy, London traders in particular who made up the Minor Metal trade became a powerful force. In those days the London Metal Bulletin could be relied upon to reflect prices of really large East-West contracts. The system served all parties well - minor metal traders, like other trading forbears, had found a way to bridge the gap between two hugely differing political systems and, with the LMB, had established a fairly reliable way of establishing price discovery.

All this has changed. The trading blocks, as we have said, have gone. In their place initially came a plethora of new traders with no experience of writing contracts nor, sometimes, any tradition of honouring them. At the same time, we saw a decline in the ability of the London Metal Bulletin to maintain its authority over its prices. The large state contracts did not exist therefore the incentive to feed information to the LMB diminished also. And lastly, both London traders and the LMB are guilty of not even quoting the large number of metals that are now traded and used in technical applications but which were not previously known as traded minor metals.

All this speaks to me of a trade that is undergoing a mid-life crisis and that needs an injection of new blood.

My redress to the problem and decline of confidence in the Minor Metal trading field centres on what may be done through the MMTA as a group. Address the problem here and we will find a solution for minor metal trading as a whole.

The MMTA must raise its profile as the established epicentre of the world trade in minor & by-product metals. That is fine - but are we doing enough to give service to those customers who I mentioned earlier with their problems?

Firstly, I believe that we need to colonize far more metals than we have currently listed in our norms - because these are the metals that our customers are using. Currently we have no norms for the metallic pure forms of zirconium, hafnium, thallium, vanadium, tungsten, molybdenum, strontium and several others. We need to increase the information that we provide to the minor metal community at large. We need to consider listing alloy norms too. All this should be done via our website. We need to have more information on our website about applications of metals. We need to embrace producers and consumers to our membership so that our community grows. We need to use the website to be more accountable to our overseas members (which is partly being achieved by our forum which is becoming public).

But all of this is nothing if we do not nurture and encourage our members to listen to what customers are really saying. The message I get from the customer is that most are locked within the labyrinths of big corporation bureaucracy that haunts all business life. Happily for us, most metal merchants are not corporations. When we come together, we come as equal members of this association. What this gives us is the priceless prize of freedom of decision. We are able to spend time studying markets that our customer is not allowed to do and buy metals with our own money at times of our own choosing. We are thus, as ever, facilitators.

So let’s go back to our list of our customer’s woes and, this time, try and see how might address them.

Our customer has trouble holding stock

We often hear the moan that we, as Minor Metal Merchants, have gone from being traders to become stockholders. But when has that not been the case? Positional trading is exactly what metal merchants thrive on. The buyer today, on the other hand, is so prevented by his troops of ‘Feyadeen accountants’ from holding stock, that a new relationship is formed with the trader in which, in return for holding the stock, either as a consignment stock (that is at buyer’s factory but under trader’s title) a trader may be encouraged to do so because when the order comes he will get the order - and at more generous prices.

#61621; Our buyer lacks information about when he will need material

Is this not a daily complaint? The best buyers in the world today, when you speak to them, are almost embarrassed by their lack of knowledge as to when & how much metal they will need. This is because the ‘just in time’ approach, again so favoured by the ‘Baath party activists’ in the accounts department, have meant planning is impossible. As we know well, the most insignificant minor metal is often produced in countries very far away from the consuming one, and often under political regimes far from the gentle world of the buyer. China alone, from where a great variety of minor metals come, is 45 days from shipping. The good buyer knows this and, in my experience, enters a relationship with the trader where his guestimates can form the basis for our own educated risk taking. To overcome this, a buyer today might say - ‘I don’t know when the order will come but I will be bound to need some quantity of metal x in the next 3 months’. For a trader, a feel of what the buyer needs is often enough. When the information of actual buying needs finally comes through, who is the most flexible and prompt supplier? Usually, it is the trader who is able to act with greatest speed.

- Our buyer is inundated with bureaucracy and corporate initiatives to reduce cost.

So crass are some of the edicts delivered from on high to the buyer these days that the buyer, to my mind. often feels spiritually closer to the trader than to his own company management. If he wants understanding for his problem he doesn’t go to a board meeting, he might have a chat to a trader. From one day to the next he might be told to reduce his supplier list, or to write a letter to all companies asking them for a reduction in their prices for the coming year, or ask his supplier to be vetted by their quality control system, or ask him to accept extended payment terms or be removed from the supply list. A buyer, who is aware of how essential business relationships are, is embarrassed by the things he is asked to do. Bu the reality is, despite the growing gloom of some traders, that most of us have found some way or other to get around these problems by working them through together. Usually it comes down to verbal insights that will give the true picture. And when material is needed in a hurry all the rules and regulations disappear out of the window. Human nature, being what it is, I do not see that changing.

- The buyer has no time to study markets.

This is where the trader is in an almost perfect position and can be of greatest use. Many of our minor metals come from complicated parts of the world which, as we have said, and are by-products of other large industries, have complicated life cycles that involve primary extraction as well as recycling and have obscure and unreported supply-demand figures. Every time we study our industry, it rewards us with priceless information that we can put to use. The benighted buyer, although he should also be taking time to do the same, rarely can. I have noticed a sharp increase in the number of meetings in recent years where I have been invited to speak, not just to the buyer, but roomfuls of his colleagues from other departments who are all prevented by their bureaucracy from doing the primary research on the materials on which they depend. So instead we, the trade, have often become the primary source of information on minor metal markets. This also puts the trader on a highly strong position.

- Finally, is the buyer going to replace us with an internet auction?

Internet auctions are being tried everywhere - the larger the corporation the more it is seen as a panacea. The main tests seem to have been carried out at steel works where Dutch auctions for ferro alloys regularly take place. The complaint I have received from traders involved in them is that, at such auctions the buyer is privy to all the offers but still exercises the right not to purchase - whereas the seller is always committed to deliver. Another experiment was undertaken by Rolls-Royce Plc - the aero engine maker - at which all super alloy orders were allocated for the year over a single week in which sellers were asked to submit their proposals over the internet. I can understand the corporate wish to harness the internet for supply and, although this last point has to be taken extremely seriously, they are still at an experimental stage and it will be very interesting to see whether they can ultimately deliver commodity supply management any better than our fallible trader.

* * *

What I hope to have shown in the foregoing, is that each of the buyer’s problems can be addressed by our flexible friend - the minor metal trader- who in order to serve the customer of today must be part sage, part psychic, part financier, part agony aunt, part metallurgist, part political scientist, part economist and probably a lot more.

It is a fairly tall order - but for those very reasons, I feel that notice of the trader’s demise may be premature. In fact, until I can see a computer that can laugh, drink, tell a joke and dance - I think the future of the Minor Metal Trader is fairly safe. © Anthony Lipmann 6.3.04

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10/7/2004

MMTA Dinner Speech ? Tuesday October 14th 2003

My theme for tonight is metal people. It is what defines most of us who are here tonight ? not just what we do, but also what we do, or do not, leave behind.

The season of the London Metal Exchange & MMTA Dinners is for many of us a time of nostalgic memory ? where we ?metal people? gather together to meet old friends and colleagues in the trade. But it is also a time when, almost involuntarily, our thoughts return to remember fellow traders from times past.

In this past year we mourn the loss of rather too many of our number but also celebrate their life and contribution to the trade ? John Middlemass, Bob Bergin and Danny Marquez.

Perhaps now is a good moment to honour their memory. John - with his partner Russell Grant - grew his & their company ? Meldform Metals ? from modest beginnings. And it is a measure of their success & domination in the field of Germanium catalysts that ultimately this division of his company was sold to one of the largest mining houses in the world - Teck Cominco.

But will we remember him just for that? Or shall we also remember him for the fact that, when diagnosed with motor neurone disease, his first act was to arrange a meeting with a leading neuro-surgeon in London to ask in what ways he might, with financial assistance, help future generations to find a cure or alleviation for this disease. He leaves as his legacy two seats at medical colleges for PHD students endowed in his name.

Then there is Bob Bergin, who for more than 30 years was indelibly associated with William Rowland Ltd, serving the Sheffield steel industry with Ferro Alloys and other additives. Like most of us, he was tenacious in his business, paid great attention to detail and to his relationship with customers and fellow suppliers. What greater tribute to a life of fair dealing than that at his funeral there were present as many competitors as former colleagues and family.

Finally, there is Danny Marquez - who I did not know personally. He began his career as a trader with the NY precious metal trader and refiner, Refinemet, and then later shone in his role as trader with Minor Metals Inc during the heyday of minor metals trading in the 1970?s & 80?s. His great legacy was to be the accredited author and founder of ?the two-way trade?. For those of you who have neither been on the end of this or know what it is ? let me explain. In the days when metals such as Cadmium or Cobalt were so volatile that they could move over $1 per lb in a day or indeed several hours, Danny invented the idea of not just making a spread i.e. a bid and offer but a ?two-way price?. In other words you could either buy from him or sell to him at the same price. To have been the mid-wife to this wonderful invention all you needed to have had was deep pockets, genius and balls the size of a jumbo jet. The clever bit was that, for a possibly sacrificial trade, he would know which way his counter-party was facing. Traders soon learnt that if they were to call him on the market ? it was not to be a matter of chit-chat.

But as we mourn the loss of all of them we must also always look forward. It is in the tradition of things that this is also the season when the up and coming young trader is first let loose on the London scene ? ?allowed out?, as it were, by his corporation - complete in ill-fitting hired dinner jacket, bow-tie and cummerbund to meet old venerable metal stars, bussed in from New York, Frankfurt or, more likely, Zug. There is something of a metal Hollywood about these occasions ? a kind of Oscar ceremony of the metal trade where the ?great in metal? mix with the gofers, would-be?s, hopefuls, also-rans, passengers and hacks like the most of us.

I am sure that every professional body has these affairs ? metal ones have a certain glamour because of the shiny and valuable nature of some of the things we handle ? that have cause to reflect their lustre on us all.

My own impressions of my first LME dinners still remain distinct in my mind. It was in about 1979 when I attended my first one. My then bosses Alastair Barlow & Mick Brackenbury were partners in what was then one of the last partnerships on the London Metal Exchange. They had a somewhat Dickensian office in St Mary-at-Hill in the City, just near the old Billingsgate Fish Market. The porters would still be carrying crates of eel, lobster and skate on top of their heavy flat black leather hats as I came in for work in the morning. The office was a converted Post Office which caused a number of problems with some of the septuagenarian locals. I remember one old boy coming in with his pension book while Mick was on the phone in the middle of the copper ring. Unfortunately, Mick took him to be a local tramp and reached into his pocket, generously giving him a shiny 50p piece, whilst simultaneously taking two customers through the ring. The pensioner did not think this a very generous donation on behalf of the state and there followed an altercation which was conducted through into the zinc and lead rings.

Being generous people Mick and Alastair gave their young trainee a £100, in notes, which I was supposed to spend on buying drinks for important people ? and maybe spend what was left over on a nice bag of chips in Shepherd Market. I had never seen so much money in my life.

So these nights, such as tonight, become a kind of yardstick in our metal year. Not everyone professes to like LME night ? there are those who say they are not going to attend because it is always the same old people and no business is done anyway. These same people, I notice, still do appear. There is a strange type of magnetism about these events ? at the very least you come along to see how the opposition is doing! You will hear the talk in the corridors:- ?Oh so and so isn?t looking too well?, or you will be there to note the ebb and flow of various competitors with all the schadenfreude you can muster ? measured by the size of the suite, the size of the table booked at dinner, the number of adverts in the Metal Bulletin, the number of people clustered around, the size of the guffaws or the breadth of the wide armed bear hugs and welcomes received.

For me there is also a personal note ? my father was a Member of the London Metal Exchange in the days when the LME vested membership in individuals ? not companies. (He may not have taught me much about metal trading but he did teach me how to tie a bow-tie.) Although he had retired ? he took me round the suites at The Grosvenor House in my first couple of years. At that time a particular generation was just beginning to gracefully leave the stage. I met Mr Sam Ayrton for the first time ? the man who with an office of no more than 4 or 5 people was able in those days to develop IMPALA and become the agent of the Russians and form Ayrton Metals in New York & London which became the leading platinum trader of its day. (Because it was the ?cold war?, he was also responsible for creating a minor cottage industry in his London office as his staff used to frequently spend their mornings hammering out the ?hammer and sickle? and ?CCCP? marks on the Russian ingots before they could be sent to Japan.) Being slightly bored with metals he was intent on some other investments. To any here tonight contemplating such a move I can only say ?beware?. In Ayrton?s case, he had the rather inappropriate ambition to conquer ?the stage? ? despite his millions, he desperately wanted to be an impresario or an Angel. (Perhaps successful metal traders after all want to be loved!) When I met him he had just invested in a re-run of the show ?The Umbrellas of Cherbourg? and just lost a packet too when it closed after a couple of weeks. As it happened I had just invested £300 (or half a unit) with the Brackenbury cook in a small show called CATS by Andrew Lloyd Webber. Now, with the hindsight of 24 years, I wonder if it would have been better to have swapped my investment in CATS for a fraction of Mr Ayrton?s trading skills. But, alas, they weren?t on offer.

But, above all things, this great trade of ours remains a people business, and an old fashioned business, a business that goes back as far as you care to look to all cultures and all civilisations. Without trade there is no humanity, there is no exchange of views, no exchange of cultures ? and we need to remind ourselves of the personal nature of how business has been conducted over past centuries when we consider our world today and the directions in which it is turning.

We see companies who have abandoned personal dealing in favour of internet auctions, we have seen large corporations now lay down rules of payment which are so unreasonably long that they are punitive to free trade, we have seen rain forests felled to produce the paperwork issued from monstrous ministries in Brussels that spew forth regulation.

Tonight, I do not feel, is the moment to go into what the MMTA is doing to monitor and redress the worst aspects of over-regulation, but these are matters to which you, through your membership of this Association, are indeed lending support.

If I look ahead to the greatest challenge that we might face over the next ten years, I believe that it will merely be this - how to counter ludicrous bureaucracy.

But of one thing I am sure ? and it is that the best tonic is through what we are doing tonight ? verifying that meeting as individual traders and companies matters. Proving that many of us owner-occupiers, financed privately, who come together in the largest minor metals association in the world have a strong voice.

By meeting here tonight, as we do each year and at the many other Minor Metals events organised by this association, we keep alive the way that trade has been conducted for centuries, person to person, building levels & layers of trust and providing the discovery of price across a range of rare and not so rare commodities and delivering in ways that consumers and producers require. Long may it continue!

I bid you stand and raise your glasses to the health of this Association.

Anthony Lipmann

14th October 2003

Minor Metals Trade Association Dinner

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9/22/2004