Weekly Market Update - January 28, 2016

Long Products Supply and Mill Shipments (SMA): The overall long products, apparent domestic consumption (ADC), was down 1.9% on a 12 month y/y basis ending December, falling to negative 3.0% growth on a 3 month y/y metric. This difference indicates a slowdown between the two periods as indicated by negative 1.2% momentum, (Table 1). Rebar was the only product to post stronger growth of +4.3%, 12 months y/y, but fell to negative 2.6% on a 3 months y/y basis. Merchant bars recorded the most severe decline between the 3 and 12 month y/y comparisons, posting negative 9.5% growth over 12 months, declining further to negative 14.9% on a 3 month y/y basis. Fig. 1 presents a graph of all long product domestic shipments plus imports. Overall import market-share was 25.0% for 2015, up 4.7 points from the 20.3% level recorded in 2014. Import levels varied considerably by product group ranging from a low of 14.1% for beams (rebar 21.0%, Merchants14.5%, SBQ 25.5%), to a high of 47.9% for wire rod.

Examining mill shipments (domestic shipments + exports, bottom part of Table 1), all product groups posted declining growth rates on a 12 month y/y basis with an overall 6.3% decline. On a 3 month measure the all product group value fell further to a -6.9% decline. This means that imports continued to take domestic share as well as hurt US export shipments. This can largely be attributed to strength of the US dollar which gained 10.2% against a trade weighted basket (Broad Index), of currencies for calendar year 2015.

On a 12 month y/y beams fell 10.5%, but recovered to a negative 3.0% level on a 3 month y/y comparison. Merchant bars on the other hand saw its performance deteriorate from a negative 9.3% decline on a 12 month y/y performance to a 13.7% decline on 3 month y/y evaluation. Structurals were the only product groups to record positive momentum (3 month subtract 12 month), of 6.8%. All sub-category within structurals had positive momentum, Table 1.

Table 1

Automotive Sales: Sales of light vehicles in November totaled $18,532 million on a 3 month moving average (3MMA) basis, up 8.9% y/y, Fig. 2. Car sales accounted for $7,645 million 3MMA, down 0.9% y/y, (Fig. 3), while the light truck component of sales ballooned to $10,877 million 3MMA, up 17.0% y/y.

Fig. 4 presents the sales figures in millions of units on a seasonally adjusted annual rate (SAAR). Car sales were relatively flat at 7.645 (3MMA) million units down 0.9% y/y. Light trucks on the other hand soared to 10.887 (3MMA) million units, up 12.8%. Import market-share averaged 26.0% for 2015 ending November vs. 27.2% for 2014.

Medium and heavy truck sales figures in millions of units (SAAR) were 0.454 million units 3MMA, up 6.0% y/y, Fig. 5.

Fig 2

Non-residential Square-Foot Starts: For the twelve months through December 2015, non-residential (NRC) starts totaled 1227 million square-feet (MSF), down 2.9% y/y. Measured on a 3 month y/y basis, starts declined 5.7%, resulting in negative momentum of 2.7%. Apartment (> 4 stories) was the largest project category at 301 MSF, up 12.2% y/y but off 2.1%, 3 months y/y. The next largest project type was warehouses at 188 MSF, down 2.1% y/y, but rising 13.9%, 3 month y/y. The category posting the largest decline was manufacturing plants, down 28.5% y/y and a worse still 38.5%, 3 months y/y. Transportation was the lone project segment to record both positive growth y/y, 3 month y/y and yield positive momentum. The results were; 6.2%, 26.1% and 19.9% respectively. Hotel/motel had a good year, posting growth of 10.1% y/y, narrowing to +1.3% on the 3 month y/y comparison, Table 2.

Fig. 6 presents a rolling 12 month total of non-residential starts from 2005 to present both with and without including apartments >4 stories. In each case growth has now been negative for three consecutive months on a y/y basis. Recall that starts translates to construction put in place approximately 12 months into the future. Note the rate of growth since the recession ended is significantly weaker when apartments are removed. Removing both apartments, as well as the second largest contributor warehouses, the slope of the line flattens out considerably, Fig. 7. Over the past 12 months the sum of apartments >4 stories plus warehouses, (2 of 14 project categories), accounted for 39.9% of all non-residential square-foot starts. Fig. 8 shows a historic comparison of apartment > 4 stories and warehouse starts illustrating the strength in these sectors. By contrast, Fig. 9 presents two laggards; office/banks and medical buildings.

Table 2

U.S. Long Product Import Licenses (SIMA): Applications to import steel long products totaled 528,000 tons (5.28kt) for the month of December, a 29% increase over November imports, (Table 3). Year to date imports plus December licenses totaled 6.3 million tons, a y/y increase of 6%. Long product imports have increased every year since 2009, (Fig. 10). Rebar licenses were flat m/m, with 85% requested by Turkey. Rebar imports rose 41% y/y, the 6th consecutive annual increase, (Fig. 11). Looking forward, as of January 26th, 161 kt have been requested for January importation, 90% of which was requested by Turkey.

Wire rod applications to import rose 74% m/m. As Turkey’s licenses increased by 18.8 kt and South Africa (16.7 kt) and the United Arab Emirates (15.8 kt) began importing wire rod to the US. Infrequent wire rod importers like Russia (6.8 kt), Belarus (5.7 kt) and Malaysia (3.4 kt) also contributed to increased wire rod imports, as well as increased shipments from the U.K. and Spain. In spite of this late year increase, wire rod imports were flat y/y.

Licenses for light angles and channels, classified by the Department of Commerce as bars-light shapes, more than doubled during the month of December. This additional tonnage was applied for by China, with the average unit value reportedly well below the average price of the rest of the world. Compared to 2014 imports, 2015 light shape imports plus December licenses were down 8% y/y. Heavy structural steel licenses rose 27% m/m, with the beam component up 21% and heavy angles and channels up 28%. This increase was also led by China, who increased heavy structural licenses by almost 15 kt, all of which were requested as angles and shapes of other alloy steel.  Year on year imports plus heavy structural licenses were down 2%.

Import licenses for hot-rolled bars rose almost 20 kt in December, and merchant bar and special bar quality licenses jumped by 19% and 16% respectively. SBQ imports were down 11% y/y, as imports of hot rolled bars declined for the 2nd year in a row, with approximately 70% of imported material originating from Europe and our NAFTA trading partners.

Table 3

Fig 10

Global Steel Cap Utilization: Global steel capacity utilization fell in December for the tenth time in eleven months to 64.6%. Utilization was 8.1 percentage points lower on a y/y basis. The 3MMA is 7.0 percentage points lower on a y/y basis as well. Total monthly crude steel production was 126.7 million tons with an annualized production of 1.52 billion tons. December’s total steel production fell slightly from November, and was down from 2015’s highest reading in May, which was 139.3 million tons. These are figures not seen since the middle of 2012, Fig. 12. United States crude steel production is down nearly 18% on a y/y basis and down 1% on a month over month basis. China’s monthly steel production is down 1% since November and 5% on a y/y basis. Despite the decline, China still contributes half of all steel production every month.

Fig 12

Chicago Fed National Activity Index: The CFNAI is a weighted measure of 85 economic indicators that gauge economic activity and inflationary pressures (Federal Reserve Bank of Chicago). The indicators are derived from production and income, employment, unemployment and hours, personal consumption and housing, and sales, orders, and inventories. The Index has a value of 0 and standard deviation of 1, with a positive reading signaling above average growth and negative reading signaling below average growth.

The Index reading in December was down sharply with a below trend reading of -0.22, from -0.03 in November, the fourth out of fifth month with a below trend reading. The indicator CFNAI-MA3 is a three month moving average that reduces volatility in the CFNAI headline reading. The reading for December was -0.24, below historical trend for three straight months and 8 out of 12 months for 2015, Fig. 13.

All categories except for Employment, Unemployment, and Hours declined in December. Employment has been above trend for three consecutive months with a reading of 0.12. Sales, Orders, and Inventories rose to -0.02 from -0.03, however, was still been below trend for 4 of the last 5 months. Once again, Personal Consumption and Housing resulted in a below trend reading, more than nine full years of below trend results. Since GDP equals consumer spending, plus investments, plus net exports, plus government spending, this reading depresses potential GDP growth.

Fig 13

Advance Orders for Durable Goods data for December was released this morning. New orders for durable goods declined by 5.1% m/m to $225.433 billion. This result was worse than analyst’s expectations, largely as a result of a 29.4% decline in civil aircraft orders. The December decrease followed a 0.5 % November decrease and a decline for five straight months. Excluding transportation, new orders decreased 1.2% m/m. Excluding defense, new orders decreased 2.9% m/m. Inventories of manufactured durable goods in December were up by $2.1 billion or 0.5% following five consecutive monthly decreases. This followed a 0.2% November decrease. Transportation, equipment inventories were up following three consecutive monthly decreases. The 3MMA of the monthly result has been trailing its trend for the last thirteen months, (Fig. 14). The huge spike in July 2014 was caused by a surge in civil aircraft orders. This resulted in the monthly number being a complete outlier in this data series and seriously distorted the year over year growth rate shown in Fig. 15. In total the three month moving average of new orders for durable goods declined by 0.9% in December m/m and by 1.8% y/y. This index is routinely whipsawed by both civil and military aircraft orders but we include in our steel analyses because it is a reality check for other manufacturing data and is described by the Census Bureau as one of the earliest indicators for US manufactured goods.

Fig 14

Consumer Confidence improved from 96.3 in December to 98.1 in January. The three month moving average, (3MMA) declined from 96.0 in December to 95.7 in January. The 3MMA of the present situation is almost on its five year trend, and the 3MMA of expectations has now fallen below its 5 year trend, (Fig. 16). The historical pattern of the 3MMA of the composite, the present situation and expectations are shown in Fig. 17. The consistency in the recovery of the composite is looking better than the turn around after the recession in 2003, but has not yet reached the level attained before the great recession. If history repeats itself, the view of the present situation will continue to move ahead and widen the differential between it and expectations. On a year over year basis using a 3MMA, the composite at 95.7 was down by 0.3. This was the first time for the y/y 3MMA of the composite to fall since April 2013. On the same basis the view of the present situation was up by 12.1 and expectations were down by 8.5, (Table 4). The job availability of both sub-indexes were up, but the expectations for salary increase were down. This was the first time for income increase expectations to have fallen since July. The year over year trend for auto purchase was negative for the sixth straight month. We don’t know what the lead of this component is compared to actual purchases, but it doesn’t seem to jive with the exceptional sales result of 2015 as a whole. Plans to buy a house have been positive for eight straight months and plans to buy an appliance became positive after negative reports in November and December. Overall in 2015 through this January 2016 report, the Conference Board index has maintained the strongest value since Q3 2007.

This is a ho-hum report. The composite consumer confidence index has made no progress in the last 12 months as gains in the present situation component have been countered by declining expectations.

Fig 16

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