Thursday
Aug212014

Weekly Market Update - August 21, 2014

Architectural Billings Index (AIA): The July overall ABI posted a score of 55.8, up 2.3 points from June and its highest reading since 2007, (Fig. 1). The score for design contracts was 54.9, a strong reading indicating growing strength in the future demand for nonresidential construction, (Fig. 2). According to Kermit Baker, AIA Chief Economist: “The key to a more widespread boost in design activity continues to be the institutional sector which is starting to exhibit signs of life after languishing for the better part of the last five-plus years.”

All of the sub-indexes recorded scores over the 50 threshold (which indicates increasing demand for design services), including the all four regional values, the multi-family residential, the commercial/industrial (51.2) and the institutional (53.3), (Fig. 3).

Fig 1

Federal Open Market Committee Minutes Summary: The meeting minutes from the July 29-30 FOMC meeting rehashed their stance from the June meeting that the economy was growing modestly and that economic growth was to pick up in the second half of 2014. A notable, however underrated, topic was the discussion of consumer price inflation. The staff noted that prices for energy and agriculture (food and energy) were up, but the futures on them are trending down over the next few years. The consensus was that the labor market has been picking up speed but there is still significant slack, but disagreed on how to assess it. Household spending appeared to have increased in recent months, however, most of the increases are due to household net worth increasing (rising equity prices) rather than income gains. Most participants claimed that a rise in income was a key element to the economic outlook. The staff indicated that their projection for inflation remained below the 2% mandate, however, some members have indicated they would like to raise interest rates to avoid “overshooting” on higher inflation. Fed Reserve President Janet Yellen has expressed that she would like to see better improvements in the labor market before making a policy move as such. The full report is available at: (http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20140730.pdf).

FOMC

Global Steel Production July 2014: Production in July on a tons / day basis was 4.415 million tonnes, down from 4.590 in June. This was the first month since February when production was < 4.5 million tonnes / day. This is not a seasonal effect, since January 2008 on average, July production has been about the same as June. The 3MMA of production in July on an annualized basis was 1.663 billion tonnes and a capacity utilization of 78.4%, (Fig. 4). Capacity is now 2.076 billion tonnes. Table 1 shows regional production in the single month of July with regional share of the global total, also three months production through July and YTD production. Regions are shown in white font and individual nations in beige. In three months through July y /y global growth was 2.5%, year to date was 2.3% both measures were down slightly from the June report. All regions except South America had positive y/y growth in three months through July. The European Union which had the fastest growth rate in early 2014 continued to slow and achieved only 0.5% in three months through July. Excluding Germany which had a positive 3.3% growth rate the rest of the EU was negative. Year over year growth of output in the NAFTA was 3.6% in three months through July with the U.S. lagging at 2.4%. Canada achieved 8.6% and Mexico 7.1%. South America had negative 2.3% growth through July with its largest producer, Brazil down by 2.5%. Growth in Asian production was 2.7% once again led by South Korea at 9.4%. In the single month of July, China’s production grew by 1.5% compared to July last year with a 3MMA growth of 2.9%. China’s 3MMA growth rate has slowed from double digits in the first half of last year and in three months through July its share of global production fell to < 50%. Fig. 5 shows that the y/y growth rate of global production has increased slightly since April.

Fig 4 Fig 5


U.S. Service Center Report (MSCI): Service centers shipments of all carbon steel products rose 6.2%, 3MMA y/y to an average of 166,500 tons/shipping day for the three month period ending July. All product groups recorded increases, led by a 9.3% increase in plate and a 6.5% jump in sheet, (Table 2). Inventory levels surged 11.2% across the board to an average of 2.28, 3MMA months on hand (MoH). Structurals posted the largest increase, up 15.5%, 3MMA y/y, followed closely by sheet, up 15.0%. Pipe and tube was the only product group to see a decline in inventory level, off 3.9%, 3MMA y/y. Daily intake jumped 12.4%, 3MMA, y/y overall, with plate surging 20.5%, sheet up 12.4%, bar & shapes up 10.6% and structural up 9.5%. Pipe and tube posted a slight decline, down 0.9% 3MMA, y/y.

Table 2

Canadian Service Center Report (MSCI): Service centers shipments of all carbon steel products rose 3.2%, 3MMA y/y to an average of 22,400 tons/shipping day for the three month period ending July. All product groups recorded increases, led by a 6.5% increase for structurals and a 4.1% bump in sheet. Inventory levels across the board increased slightly (0.3%), with wide variations by product group. Structural inventory surged 18.2%, 3 MMA y/y, while sheet pulled back by 8.6%, (Table 3). MoH stood at 2.88 ending July, up from June’s 2.82. Daily intake increased by 19.2% for all product groups led by a 28.8% jump in sheet and a 15.1% rise in plate.

Table 3

Construction Producer Price Index (BLS): The PPI for all material components of all non-residential construction increased by 1.4% over the past twelve months and by 3.3% over 24 months, (Fig. 6). The PPI of commercial structures shows a 12 month increase of 1.7% and a two year increase of 3.4%, very similar to the overall non-residential index. Warehouse construction shows the highest level of inflation, up 2.6% y/y, (Table 4). Table 5 presents the PPI of building materials compared to 3, 6, 12 and 24 months ago. On average, construction materials have increased by 2.2% y/y with the largest increase coming from softwood lumber, up 10.0% y/y, followed by structural steel, up 7.2% y/y, but down 3.5% from two years ago. Other building material PPI include: Ready mixed concrete is up 4.4% y/y and fabricated structural steel for non-residential buildings, up 2.9% y/y.

Fig 6

Unemployment Claims: New unemployment claims fell to 298,000 for the week ending August 16th, 14,000 lower claims than the previous week. This figure has hovered around the 300k mark for the past seven weeks dating back to July 5th. The four week moving average is 300,750, 9% lower on a y/y basis. This figure smoothes out weekly volatility in reporting. The four week moving average is roughly 33,000 new claims fewer on a y/y basis. Seasonally adjusted continuing claims fell to 2.50 million, 17% fewer claims from the same time last year. This indicator has remained below the 3 million mark for all but one week since July 2013, with the four week moving average staying under the benchmark since July 27, 2013. Continuing claims have recovered 64% since the end of the recession in June 2009, (Fig. 7).

Fig 7

Steel Demand Indicators: Table 6 is a snapshot of the market situation on 08/21/14. Seven of the “present situation” indicators are still depressed by historical standards, ten are neutral and ten are good. There has been no change in the present situation picture since July 10th. Overall trends are good with 22 of 27 indicators moving in the right direction, one had no change and four have negative trends. In most cases values are three month moving averages. Changes in the last two weeks of data releases were: Within the general economic indicators the Broad Index value of the US $ changed from negative to positive as the value against a basket of our major trading partner’s currencies declined slightly. A declining $ tends to reduce net imports. Within the long products steel section there were two changes. The price of Chicago shredded which increased by $10 in July to $375 remained unchanged in August. We regard a rising scrap price as positive because of its implications for steel demand. Net imports which had been trending extremely negative in the May data declined slightly in June therefore the trend switched from negative to positive. Within the construction section, the PPI of commodities had been positive switched to slightly negative. We regard an increasing commodity PPI to be positive because it implies an increase in future steel demand, particularly for industrial construction. All manufacturing trends are good which showing no change since April 16th. 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 6

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