Thursday
Mar262015

Weekly Market Update - March 26, 2015

US Service Center Report, (MSCI): The three month moving average (3MMA) daily shipment rate for all carbon long products was up 0.3% y/y in February. The 3MMA y/y percentage change has been positive for 19 consecutive months, but the 0.3% 3MMA increase in February is by far the lowest gain over that time-frame. The previous lowest y/y gain was 1.6% in August 2013. Plate recorded the strongest gain, up 4.7%, followed by pipe & tube up 2.6%. All other products posted negative growth 3MMA y/y, (Table 1).

Daily intake 3MMA rose 0.8% y/y for all carbon steel products, influenced by an 11.7% rise in plate. All product groups recorded increased percentage y/y intake with the exception of sheet, which declined by 1.9%. Overall monthly inventory levels grew by 15.4% y/y to achieve a 3MMA of 2.95 months on hand (MOH), identical to January’s number and 0.45 higher than the long term average (2003 to present) of 2.50. Plate posted the largest increase, up 30.9% 3MMA, while sheet inventory increased by 15.4%. Structurals also posted a significant increase, up 11.5% 3MMA y/y. Fig. 1 compares the historic inventory MOH for each product. For the 3MMA posting in February sheet and plate MOH were higher by 0.66 and 0.58 months respectively vs. its long term average. Pipe and tube and structurals were higher by 0.21 and 0.28 months respectively, while bar shapes were lower by 0.21 months.

Table 1

Fig 1

Canada Service Center Report (MSCI): Overall daily 3MMA shipments from Canadian service centers fell by 4.0% 3MMA y/y and were down 6.0% vs. two years ago. Sheet recorded the largest decline, off 5.9%, followed by pipe and tube, down 4.4%. Bar and shapes was the only product group to record y/y gains, up 4.4%, (Table 2). Daily 3MMA intake plummeted 6.7% y/y, pulled down by a 15.7% decline in sheet. All other product recorded growth in intake 3MMA y/y led by structurals, up 9.9%. Monthly overall inventory levels surged by 21.4% y/y to 4.09 MOH, as all product groups posted double-digit increases in inventory levels. This is 1.23 MOH greater than the average since 2003, Fig. 2. For individual products MOH levels are higher across the board ranging from a high +1.54 months for sheet to a low of +0.54 months for bar and shapes.

Table 2

Drawn Wire and Wire Rod Product Imports: Drawn wire imports increased by 15.5% to 702,716 short tons in 2014 as compared to 2013. This was on the heels of a 14.5% y/y increase in 2013. Thus over a two year period, drawn wire imports to the US have increased by 30.1%. Imports of wire rod products to the US rose by 5.9% y/y to 2,490,463 short tons and by 9.3% over two years. Wire ropes posed the largest y/y increase, up 10.0%, followed by rivets and other pins which increased by 7.5% y/y. Nails (5.7%), welded wire mesh and chain link fencing (5.0%) and screws (4.3%) also posted increased y/y import volume. Barbed wire (-3.4%) was the only product to record a y/y decline, (Fig. 3).

Adding the two (drawn wire and wire rod products) together totals 3,193,179 short tons for a 7.7% y/y increase, 13.3% over two years. This would appear to be a huge loss of market share that US producers lost, but as Fig. 4 illustrates, foreign market share in percentage terms has been remarkably constant at approximately 40% from 2003 to present.

Fig 3

Long Product Shipments, (SMA): Total long products (rebar, beams, structurals, merchant products), apparent domestic consumption (ADC = Domestic mill shipments + imports), grew 7.9% y/y and by 4.1%, 3 months y/y ending February 2015, (Table 3). All product groups posted y/y increases for both 3 and 12 month y/y comparisons. However, in every case except other structural shapes, momentum (3 month subtract 12 months) was negative which is indicative of a marketplace that is exhibiting a slowdown. Overall US mill shipments (domestic shipments + exports), declined 4.4%, 3 months y/y. On an individual product line basis, beams shipments recorded the greatest decline, falling 14.7%, 3 months y/y, while wire rod and other structural shapes showed growth of 4.8% and 3.8% over the same timeframe. On a 12 month y/y comparison, mill shipments eked out a gain of 1.8% on an overall basis, ranging from 5.5% growth for wire rod to a decline of 6.0% for other structural shapes. The fact that ADC growth recorded a larger percentage gain than did mill shipments means that imports gained most of the market size gain over the past year. In fact long product imports increased from 3,996,000 tons for the 12 months ending February 2014 to 4,920,000 tons for the 12 months ending February 2015, an 18.8% y/y increase.

Table 3

Non-Residential Construction Starts, (McGraw Hill/Dodge): Table 4 presents non-residential construction (NRC) starts through February for both 3 and 12 month y/y comparisons in square footage terms. The data is sorted by project type on 3 month y/y growth in square feet (millions), from high to low. On a 3 month y/y comparison, NRC recorded growth of 8.9%. The 12 month y/y growth was higher at 11.2% indicating negative momentum of 2.3%. Apartments (>4 stories), continue to rank the highest in total square feet and account for 20.8% of total NRC starts on an 12 y/y basis. With single-family demand still lagging, activity is, stronger in the rental and apartment markets. The rental vacancy rate is at the lowest since 1985, while at the same time multifamily construction has recovered to prerecession levels. Eleven of the 14 project categories (78.7%) showed growth 3 months y/y, one better than the 12 month metric. In a very encouraging sign, several institutional project categories are showing solid growth after posting long declines in y/y growth. These include: Civic (71.8% 3 months y/y), education (24.3%), medical (19.6%), and transportation (1.3%). Eight of the 14 project categories (57.1%) recorded negative momentum this month. Fig. 5 illustrates NRC growth on a rolling 12 month basis. Referencing the dashed red arrows, we see that the slope of NRC growth took a “pause” in late 2013 and early 2014 and appears to be repeating this cycle in late 2014 and early 2015. Recall that both years (especially 2013/14) had particularly harsh winters which curtailed construction activity. The majority of macro-economic conditions are favorable for decent NRC growth in 2015 so we expect the growth rate to accelerate back to trend as the year progresses.

Table 4 

Fig 5

NAFTA Automotive Production through February: Total light vehicle, (LV) production in NAFTA in February was at an annual rate of 16,153,560 units, up by 233,928 from January or 1.0%. History predicts that production will increase in March before declining by 9% in April. On a rolling 12 months basis y/y LV production in NAFTA increased by 4.1% through February. Note this is exactly the same as the growth of industrial production in the US through February. LV production in NAFTA is now well above the pre-recession peak of Q2 2006 and is heading for the all-time high of mid-2000, (Fig. 6). On a rolling 12 months basis y/y the US is up by 3.8%, Canada is down by 1.2% and Mexico is up by 11.3%, (Table 5). If we examine the growth in total by vehicle type and by country since Q2 2006, the result is not good as far as the US and Canada are concerned. This is demonstrated in Table 6 on a rolling 12 month basis and shows that LV production in NAFTA is up by 6.0%, the US is down by 0.4%, Canada is down by 13.4% and Mexico is up by 71.8%. Some good news for the US is that this month Mercedes announced plans to invest $500 million to build a new assembly line in Charleston SC to build the Sprinter van. Construction will begin next year. On a seasonally adjusted annual rate, light vehicle sales weakened in February to 16.2 million units, down from 16.7 million units in January but still up by 5.2% from February last year. Automobiles were down from 7.5 to 7.2 million and light trucks from 9.1 to 9.0 million units. Import market share was steady at 21%. Total light vehicle inventories in the US decreased by 12 days of sales from a very high level of 81 in January to 69 in February which was six days lower than February last year. Month over month FCA (Fiat Chrysler Automotive) was down by 17 days to 85, Ford down by 7 days to 80 and GM down by 18 to 76 days.

Fig 6 

Table 5

Global Steel Production and Capacity Utilization through February: Global steel production in the 12 months through February totaled 1.628 billion tonnes with a capacity of 2.2 billion tonnes which yields a utilization for the 12 month period of 74%. Production in February on a tons / day basis was 4.558 million tonnes which broke a string of four consecutively declining months. The three month moving average has declined significantly in the second half of the year since and including 2010 which usually extends into February, (Fig. 7). As production has increased each year since the recession, capacity utilization has decreased, the gap is widening. Table 7 shows global production broken down into regions and also the production of the top ten nations in the single month of February and their share of the global total. It also shows the latest three months and twelve months production through February with year over year growth rates for each. If the three month growth rate exceeds the twelve month we interpret this to be a sign of positive momentum and accelerating growth. The reverse is the case today though Asia and South America are bucking that trend. The growth rate in twelve months through February 2015 was 1.5% year over year. In the three months through February there were significant differences in regional year over year production. North America, (which includes the Caribbean nations) was down by 1.6% in total with the US down by 2.4%, Canada down by 1.8% and Mexico by 3.8%. The European Union was down by 3.1% and other Europe led by Turkey was down by 7.9%. Asia was up by 2.3% with declines in Japan and Korea and increases in China and India. Fig. 8 shows that the 3MMA of the monthly year over year growth has been depressed for six months. The recent decline in the price of oil, of iron ore and of the Baltic Index suggests that the global economy is weakening. Certainly there is a supply side to all three of those statistics but it seems that demand is also down and suggests a further slowdown in global steel production in 2015.

Fig 7 

Table 7

Construction and Manufacturing Employment: Total construction employment increased 29,000 in February to 6.353 million, the highest level since February 2009. The industry has experienced 14 consecutive months of positive job creation and is +416,000 during that time period. Construction employment is up 30 of the last 33 months and is +740 in this timeframe. Manufacturing employment increased 8,000 in February and for the 19th consecutive month of net positive job growth. Total manufacturing employment is 12.33 million, the highest level (like the construction industry), since February 2009. Manufacturing - Motor Vehicles and Parts Manufacturing also saw an uptick in employment, growing 800 jobs in February. The industry has also experienced 13 straight months of job growth and is up nearly 61,000 during the time, (Fig. 9).

Fig 9

Manufacturing Cap Utilization: Total industry capacity utilization fell for the fourth straight month in February with a rate of 77.305. Despite the four month decline, this figure is up 1.24% on a y/y basis. The ideal capacity utilization range is 75%-85%. Manufacturing capacity utilization has remained in this range since the beginning of 2012, albeit on the lower side; however, this figure hasn’t been north of 80% since early 2000, (Fig. 10). February’s number is below the long run average capacity utilization of 78.7%. Problematic weather conditions was the main reason for the decline in February. The Manufacturing ISM Index also fell in February to 52.9 from 53.5, for the fifth consecutive month, with the 3MMA dropping nearly 4 percentage points during this decline.

Fig 10

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