Weekly Market Update - April 17, 2014

U.S. Scrap Exports were up 33.5% m/m ending February; however January was an especially low export month, (Fig.1). Exports averaged 1.426 million tons in the June through December period collapsing to 0.897 mt in January. Turkey jumped back in the game in February importing 0.202 mt in February after a fall off to 0.151mt in January. Turkeys June through December period average was 0.418 mt. The next biggest importer was Taiwan with 0.178 mt in February, off 10.1% m/m, its six month average has been 0.233 mt. On a rolling 12 month basis, U.S. Scrap exports have fallen for twelve consecutive months. Some of the decline can be attributed to a strengthening US dollar which weakly correlates with scrap exports, (Fig. 2).  Despite the U.S. dollar strengthening against the Broad Index (trade weighted basket of currencies), Turkey, Japan, Russia and Ukraine’s currencies have all devalued against the dollar. In addition the Eurozone continues to struggle with low growth rates. In February, 52% of U.S. scrap exports arrived at Asian ports while 17% went to Turkey. Over the past 12 months 47% of exports were to Asian countries, and 26% went to Turkey. This is big change in trade patterns over a relatively short period of time.

Fig 1

Producer Price Index Structures and Construction Materials: Table 1 compares the PPI of structures in February with the price 3, 6, 12 and 24 months ago. The price of all types of structures was higher over each time comparison. Non-residential construction was up 1.2% over two years, and up 1.1% over the past three months. The largest price increase over the last three months was for commercial buildings, up 1.2%. The smallest price change over the same timeframe was for offices up 0.1%. Looking at the overall PPI of construction materials, we see a 3.3% price increase over two years and a 1.6% increase from three months ago ending February. All construction materials have posted price increases vs. three months ago and all but two (pipe and tube including HSS and prestressed concrete bridge beams) are up from six months ago, Table 2. Softwood lumber and wood trusses have seen the largest price increases, up 21.8% and 20.0% respectively over the past two years. Softwood lumber PPI was up 6.0% vs. three months ago, while wood trusses increased 2.3% over the same period. Stronger demand for new home construction was the primary driver. Hot rolled structural shapes prices were down 6.8% compared to 24 months ago but were up 1.8% over the past three months. Fabricated structural steel (for non-residential) PPI was up 1.4% over the same timeframe. Rebar PPI was down 3.1% over two years, but is up 2.0% from three months ago.

Table 1

Producer Price Index Hot Rolled Bars and Competing Materials: The PPI of hot rolled bars was down 7.2% from its level two years ago, its PPI is up 3.6% over three months. Carbon steel impression die forgings recorded price increases of 2.3% and 0.6% over 24 and three month time intervals. Powder metal parts posted price declines in each of 3, 6, 12 and 24 months. The most recent decline was 0.2% vs. three months ago, Table 3. Aluminum impression die forgings PPI were down 3.1% over two years, there was no change over the past three months.

Table 3

CPI and Consumer Confidence: The Consumer Confidence Index rose in March to 82.3, its highest reading since Q1 2008. The index was up 33% on a y/y basis. The Present Situation sub-index fell for the first time five months, with a reading of 80.4, down from 81.0 in January. This sub-index is still up nearly 36% on a y/y basis. Consumers had mixed results about current business and labor conditions, as the percentage of those who thought conditions were good and bad both increased. The Expectations sub-index jumped 7 points in February to 83.5 and up 31% on a y/y basis, however, down 8% from June’s three year high of 91.1. Consumers who expected business conditions and plentiful jobs both improved from a down month in February, (Fig. 3). Core CPI, which tracks goods and services minus food and energy, remained flat in March at 1.6% and down 0.2% from August 2013. This index excludes food and energy because of their volatility. One part of the Fed Reserve’s dual mandate is 2% inflation, which is necessary for economic growth, and has remained below that threshold for a majority of the expansion, post-recession.

Fig 3

Job Openings (JOLTS): The US Job Openings & Turnover Survey reported 4.173 million openings at the end of February, a 7% rise from the previous month and 4% on a y/y basis. Total hires remained at 4.5 million, unchanged from January. Total separations were at 4.4 million, a net change in employment in February of +197,000. The South Region experienced the biggest increase in job openings, with a 9% jump in February, after two straight months of decline. The other three regions also experienced an increase in job openings in February, perhaps giving an early indication that the dead of winter was abating. Manufacturing experienced a third straight month of lower job openings, while Trade, Transportation, and Utilities had a 14% rise after two months of decline. The Construction Industry posted a 3% drop in February from 124,000 to 120,000 openings; however, the numbers yield a far better result than December’s abysmal 33% decline, 165,000 to 124,000. The harsh winter across the majority of the United States has historically played a key factor to job openings data during winter months. Total private and government layoffs fell in February for the first time in three months, (Fig. 4).

Fig 4

Global GDP forecast through 2019: Last week the IMF revised its forecast for global / regional and national GDP growth through 2019. Global GDP has declined for three straight years after the post recovery surge in 2010. The new forecast calls for an expansion of global GDP from 3.0% in 2013 to 3.6% in 2014 and stabilizing at around 3.9% in the years 2015 through 2019. Fig. 5 shows the history and forecast of Global GDP from 1970 through 2019. There is no sign of a repeat of the boom years that existed in the early-70s and mid-00s that led to the commodity bubbles of 1994 and 2007. The IMF forecast calls for a 2.8% growth in the US economy this year rising to 3.0% in 2016 and declining to 2.2% in 2019. The emerging and developing economies which have also had three consecutive years of decline are projected to grow at 4.9% this year then to stabilize in the range 5.32% to 5.38% in the years 2015 through 2019. This will be over 3% lower than the growth rates of 2006 and 2007. The US is projected to outperform the Eurozone every year through 2019 by an average of 1.3% per year. Mexico which had the lowest growth rate in NAFTA last year will take the lead again this year and in the six years 2014-2019 will average 0.84% higher growth than the US who will enjoy a 0.52% advantage over Canada.

Fig 5

Steel Demand Indicators: Table 4 is a snapshot of the market situation on 04/16/14. The review of the present situation indicators shows a reduction of one in the positive category and an increase of one in neutral since this report was last published on March 27th. This change was for the Chicago Fed National Activity Index which by definition now is aligned with its long term average. Ten of the “present situation” indicators are still depressed by historical standards of which five are from the construction sector. These are identified in red. However ten are still green, which is one of the best results since we began this analysis four years ago, when only three of the present situation indicators were green. Seven of the present situation indicators are now neutral by historical standards. The trends analysis has moved in the right direction since last reported when the ratio was 15 positive and 12 negative. Now we have 18 positive and 9 negative. In most cases values are three month moving averages y/y to remove seasonality. Since March 27th there has been no change in the trend of the general market indicators. The long product steel sector has added two positives to the trends column. These were mill shipments of long products which on a y/y basis trended positive and the price of Chicago shredded which gained $10 in April. The manufacturing sector added one new positive trend as manufacturing capacity utilization which had declined by 0.01% in February recovered and improved by 0.23% in March. The latest month or quarter for which data is included is identified in the 2nd column. Indicators updated since last published are shaded beige. (Explanation of Indicators).

Table 4

Contributors this week include; Laura Remington, Bryan Drozdowski, Peter Wright and Steve Murphy