Weekly Market Update - December 12, 2013

Portland Cement Shipments: September shipments surged 10.1% y/y, increasing in every census region of the country. The largest percentage changes were in the East and West North Central regions, both up 14.9% y/y, (Fig. 1). The largest volume consumer was the West South Central region at 18% of total shipment volume followed by the East North Central and South Atlantic at 15.9% and 15.3% respectively. The 12 months moving average shipments have increased for three consecutive months and in five of the last seven months, indicating that the construction recovery is gaining strength, (Fig. 2). However, positive momentum can reverse. Note the steep growth and momentum rise in 2011 and early 2012 that quickly fizzled through the remainder of 2012 into mid-2013, (Fig. 3). According to the Portland Cement Association, most of increased cement volume in 2013 stems from the ramp-up in new residential construction. In its fall 2013 forecast, PCA predicts an 8.8% y/y growth in total construction and a 7.5% y/y increase in non-residential building activity.

Fig 1

Construction Put-in-Place: Table 1 summarizes total CPIP results for October from the U.S. Commerce Department. It has been quite a while since the entire three month moving average column has been ‘all green’. Private construction was up 7.4%, 3 months y/y, led by residential construction up 22.3%. Public construction posted positive numbers as well, up 0.6%, 3 months y/y. Year on year numbers are also encouraging, up 7.1% overall, with the private sector recording a gain of 11.4% y/y while the public sector was down by 2.3%. The sub-component non-residential construction results, while not quite as good as total construction numbers showed signs of promise, (Table 2). Overall non-residential construction was up 2.5%, 3 months y/y, led by a 7.4% jump in private sector spending. The overall number dragged down by a 6.0%, 3 months y/y decline from the public sector. Fig. 4 compares the private and state and local spending from 1994 to present. Since 2010, the private sector has posted stronger construction numbers, while the public sector has been declining.

Table 1

Scrap price benchmarks: Chicago shredded has risen by $56 per gross ton (Chicago shredded scrap price history published with the permission of American Metal Market, in the months of November and December ending what, based on benchmark analysis had been a buying opportunity. Fig. 5 shows the correlation between scrap and iron ore which has had a correlation of 83% since January 2006. In early December the Platts Iodex 62% Fe CFR North China had risen from $113.75 in mid-August to $139.00 on December 6th thus confirming the recent direction taken by scrap. In August Goldman Sachs forecast that ore would be down to $80 by 2015. Fig. 6 shows the relationship between scrap and the broad index value of the US$ with a correlation of negative 88%. Since scrap is a global commodity priced in US $, when the value of the $ increases the price of scrap decreases. This benchmark says that scrap is priced too high today. Fig. 7 shows the relationship between scrap and oil, (West Texas intermediate) with a correlation of 93%. Scrap has crossed the oil threshold ending what was a buying opportunity. If this trend continues into the spring when the winter effect will have waned it will indicate that scrap is overpriced.

Fig 5

Durable Goods Orders declined 1.6% in October from September with a total dollar value of $231,362 million, (Fig. 8). Durables goods orders have yet to recover from July’s precipitous drop of 8.1%, when total orders came in at $224,620 million down from $244,351 million. The largest increase came from mining, oil field, and gas field machinery with a +28.7%, followed by a -20.0% in September, providing further evidence of volatility in this industry group. Most other industry groups fell in October with defense aircraft and parts, photographic equipment, and ships and boats leading the decline with drops of 19.1%, 16.4%, and 16.3%, respectively. Core durable goods ticked up 0.4% in October.

Fig 8

Net Job Creation: Total nonfarm net job creation for November increased 203,000. September’s figures were revised upward from 163,000 to 175,000, while October’s numbers were revised down from 204,000 to 200,000. Total job creation year to date is 2,074,000 compared to 1,974,000 during the same time period in 2012. Of the overall unemployed, 53.5% have been unemployed for 15 weeks or longer; of these, 37.3% are unemployed for 27 weeks or longer. This figure remains above historical averages. The employment to population ratio, which calculates total employed by total working age population, has fluctuated little at 58.6 since 3Q 2009. This signifies that job growth is keeping up with population growth, but not enough to restore employment to pre-recession levels. Labor force participation rate, which measures working age persons who are employed or unemployed but looking for a job, had peaked in the late 1990’s and has been falling ever since. There has been a decline in the 16-24 age bracket which notates that there have been “non-starters”, which doesn’t add to the labor participation rate but reduces it, (Fig. 9). Total construction employment increased 17,000 in November, the sixth consecutive month of job growth in the industry. Construction employment year to date is +140,000 compared to +127,000 during the same period in 2012. Manufacturing experienced a fourth straight month of net job growth, reporting in +27,000 in October, and the largest net increase since Q1 2012. Manufacturing net job employment is down 67,000 on a YTD period over period basis. Manufacturing employment in Motor Vehicle and Parts Manufacturing has increased eleven of the past thirteen months and is +51,800 in net employment during that period.

Fig 9

U.S. Consumer Credit: topped $3.08 billion in October, climbing $18.2 billion, a 7% y/y increase. Influenced by increased consumer and business confidence with gains in jobs and wages, Americans were estimated to have spent in excess of $130 billion on Black Friday holiday shopping. Easing of bank lending standards, motivated by increased interest rates and increased competition for loans, has encouraged businesses to continue hiring and increase wages of current employees. Non-revolving credit, such as mortgages, vehicle loans & student loans, grew $13.9 billion, now totaling $2.22 trillion owed by American consumers. Revolving credit, general thought of as credit cards, increased 6% y/y to $856.6 billion, (Fig. 10).

Fig 10

U.S. Import Licenses: for long products totaled 369,000 tons in November, falling 6% m/m. Year to date (YTD), imports total 4.4 million tons, an increase of 4% over the same period in 2012, (Table 3). Light Angles & Channel imports increased sharply, up 123%, reflecting a retraction from Mexico during October, only to return in November. YTD y/y shipments were down 5%. Heavy Structural Shapes rose 21% in November, with beams (a sub-component of Heavy Structurals) up 161%. YTD y/y Shapes were up 20%, while Beams were up 38% over the same timeframe. Wire Rod, licenses fell 2% m/m and have now declined for four consecutive months. On a YTD y/y basis, Wire Rod imports were off 22%. Conversely, Rebar licenses rose 6% in November, exhibiting little reaction to the imminent U.S. trade cases, and have climbed 18% YTD y/y. Licenses for hot-rolled and cold finished bars, products, fell 28% m/m and are down 8% YTD y/y.

Table 3

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