Weekly Market Update May 17, 2012

Vehicle production and sales; Total light vehicle production in NAFTA was down in April but the 3 month moving average continued to increase. In the last 12 months production was, US 9,052.134 units, Canada 2,215,158 units, Mexico 2,660,257 units. The difference in recovery between the US and Canada v Mexico continues to be extraordinary, (Fig 1) however the US has made up a little ground in the last 12 months as Canada has lagged. German industrial conglomerate Evonik Industries AG says that it will take at least three months for its damaged chemical plant to resume normal production of CDT, which is a critical material used as a coating on fuel and braking systems on most passenger cars worldwide. Automakers are scrambling to figure out whether they'll have to stop production for a while in response to this shortage. Y / y auto sales in the US were up 9.1% in April at an annual rate of 14.4 million units. Cars continued to outpace light trucks with a sales rate of 7.4 million units. This has been the case for the 4th consecutive month as buyers have responded to higher gas prices, (Fig 2).	Fig 1
Regional commercial construction, vacancies and completions by project type. Reis monitor commercial property vacancies, absorption of space and new completions for the US on a quarterly basis by five regions. In Q1 2012 every region had a net absorption of square footage greater than completions for three property types, office, retail and apartments. As a result vacancies for all property types declined in all regions, (Table 1). The bad news is that absorption and completions of both offices and retail, though improving slowly, are still depressed. Apartment absorption is greater than at any time since 1999 and is the only commercial sector with good construction prospects in the immediate future. Net absorption and completions in the last year in millions of square feet were; office 20.0 and 11.3, retail 7.2 and 6.6, and apartments 164.5 and 39.1.	Table 1
Truck, rail and ocean, freight. Demand for flatbed trucking services improved in April y / y as growth in automotive production, oil and gas exploration, steel production, and incrementally improved commercial construction all contributed. Through April 23rd, flatbed rates in the spot market were $2.12 per mile; 5% higher than the same time in 2011, (Fig 3). Tight capacity will continue through 2012 as migration to less labor intensive modes (i.e. dry-van) attracts remaining drivers. (Source Cleveland Research). US railcar loads of steel and other primary metal products in April were up by 8.1% from April 2011 and 14.5% from April 2010 (Fig 4). Scrap shipments were up by 5.3% and 12.5% on the same basis. Total US railcar loads were down 5.5% over April 2011. Coal was the main reason for the decline due to the mild winter and also low natural gas prices makes gas based electricity generation more economical. (Source Rail Time Indicators). After reaching an all time low in February, the Baltic Index of dry bulk ocean freight rates has recovered slightly, (Fig 5). The Capesize sector is suffering from reduced iron ore shipments to China as new ships come on stream. Panamax is not doing much better. The smaller Supramax and Handys are benefiting from an uptick in demand. (Mid Ship Report.)	Fig 3
Scrap exports in March were the highest since August last year at 2.15 million tonnes. Turkey had big months back to back and has been the top destination for the last five months, (Fig 6). Compared to Q1 last year, total exports were up 7%, the biggest gainers being Turkey, up 66% and South Korea up 29%. China was down 30%, Canada down 14% and Mexico down 32%. The export market may be slowing as AMM reported on Monday that “Turkey didn’t pick up a single bulk cargo from the US last week while at least two West Coast exporters reported there had been no bulk sales from that region.” On Monday Platts reported another $10 decline in shredded prices delivered E. Coast dock making the negative spread against the Mid West price $27.50, the highest in 27 months.	Fig 6

European debt crisis. The debt bubble has been interrupted, austerity is causing economies to slow, tax revenues are falling, deficits are increasing and more austerity measures are being pursued to keep debt under control. A classic downward spiral. Pro austerity candidates lost their seats in Greece, France and the UK in the last two weeks in favor of growth (more debt) oriented candidates. Germany is not prepared to increase their own debt or take on anyone else’s. Something has to give! This is not simply a banking or sovereign-debt crisis; it is about a massive trade imbalance and huge differences in the productivity of labor. The trade imbalance between the south – Portugal, Spain, Italy, and Greece – and the north (mostly Germany) must be resolved if the currency union of 17 nations is to hold together. The dangers for the US steel industry are that the European mess causes a slowdown of the global economy and a major drop in the value of the Euro, both contributing to a flood of imports.