ERMUSR Misc Issues 06-06-2006 - Laserfiche WebLink

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® Soaring prices for raw materials will soon see a correction. ' But don't mistake the price drop for a collapse in commodities. Dips of 10%-20% the rest of 2006 will take the froth off the market, erasing much of the recent gains driven by investors seeking big returns. 50 ~. Global Consumption ~~~ 40 of Metals (In millions of tons) ,~• -° Aluminum i~ so \~' -r~~/ Copper •• 20 Zlnc~ o _ ~~~~ T 7 T T T T '95 '00 'OS '10 '15 Sources'. Global Insight, CRU Analysts, Nip tin qer in Latin America and an Latin America and Russia Demand for metals will keep outpacing su~nly as industrial growth in the U.S., China, Japan, South Korea and eastern Europe continues at a fast clip. China alone will double its consumption of aluminum, copper, nickel, zinc and other industrial metals by 2011 or so. Use of aluminum, copper and zinc won't abate. Ditto for many other metals. They're needed by manufacturers of everything from airframes and autos to electrical and building materials. The supply chain of kev metals faces more kinks, a result of high energy costs, political unrest investment climate in Russia that's iffier now. produce many key raw materials used worldwide. An unintended result of new accounting rules taking effect soon: Higher borrowing costs for many firms. The regulations from FASB, the Financial Accounting Standards Board, call for pension obligations to be counted as liabilities, giving a truer reflection of future costs. Hardest hit: Big manufacturers, mainly makers of airplanes, autos and steel. These companies have unions and lots of high pension costs. Many firms will try to renegotiate their loans rather than default. Rail freight shipping rates will lump again next year...by 7% following this year's 6% rise. Just finding space is becoming harder. A 10% increase in import-export freight is filling up railcar capacity. Many West Coast-bound trains are loaded with scrap metal headed to China. Expect higher trucking costs, too. They'll climb 4% in 2007. There's no relief in sight on property insurance rates. Look for 10% annual hikes for years as insurers base their rates on risk models that indicate the strong likelihood of catastrophes at least once every decade. Another factor: Higher prices for cement, plywood, steel and labor are pushing up the cost of rebuilding. A mixed bag on worker's comp rates: Despite high medical costs, employers in most states won't see an increase anytime soon. In Calif., Texas and Fla., rates will dip a bit because of tighter claim procedures. But rates are poised to rise slightly in W.Va., Mont. and Alaska, where restrictions on worker claims are looser. In S.C., rates will jump a whopping 33% this year because of red tape and slow claims resolution. ~ Upcoming hotel contract talks will be a big test of union clout. Unite Here, a part of a new federation known as Change to Win, which broke from the AFL-CIO last year, plans a new organizing approach to boosting membership among hotel workers. It will press hotel owners to recognize a union without an election if a majority of workers simply sign a card showing interest in becoming unionized. Hotels will be the guinea pig to see whether the plan can revive union strength. Remember, your subscription includes The Kiplinger Letter online f