Total supply of steel products was down by 4.8% in Q1 2013 from Q1 2012. Excluding rail and seamless tube, long products were down by 5.6% and flat products by 4.6%. This analysis is based on the AISI report AIS10 and Department of Commerce trade statistics, (Table 1).  The supply of structural shapes and rebar both increased as construction continued to gain momentum.   Products with a manufacturing orientation, wire rods, hot rolled bar, light shapes and cold finished bar all declined.   There was a very strong increase in structural tubing but this may not be a true reflection of the market since the independent tubers are not included in the AISI statistics.   The market share of total finished steel imports, (excluding semis) increased from 23.3% in March 2012 to 24.3 in March 2013, (Fig. 1).

Table 1

Unemployment U3 vs. U6: The U-3 unemployment rate for April was 7.5%, while the U-6 rate was 13.9%. U-3 and U-6 both measure unemployment data but with different definitions, (Fig. 2).  The U-3 is the official unemployment rate that is frequently referred to in the media.  Its definition is “total unemployed, as a percent of the civilian labor force”.  The underutilized U-6 measures “total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force” (source: BLS).   Marginally attached workers are defined as those who are not currently looking for work but note that they would like to be employed. Both the U-3 and U-6 have been falling since the end of 2010, however the U-6 is significantly higher since it includes marginally attached workers.  This is an important statistic since there are 2.3 million persons marginally attached to the labor force and part time workers increased to 8 million in April.  These two numbers add to 10.3 million workers out of a total labor force of 155.238 million, roughly 6.6% being unaccounted for in the official rate.

Fig 2

Bank lending standards and Federal Reserve Senior Loan officer survey: In the April survey, domestic banks, on balance, reported having eased their lending standards and having experienced stronger demand in several loan categories over the past three months.  In the last three quarters, demand for commercial real-estate loans has been higher than at any time since the first quarter of 1998 and banks willingness to lend is approaching the pre-recessionary peak of the first quarter of 2005, (Fig. 3).  This is one of the pillars that will support the recovery of non-residential building construction.   The data for commercial and industrial loans is broken down into large firms with > $50 million of annual revenue and those less than this size.  In both cases, more banks reported an increase in demand for C&I loans, particularly from small firms.  Banks willingness to lend also increased particularly to large firms, (Fig. 4 & Fig. 5).  Banks that eased their C&I lending policies generally cited increased competition for such loans as an important reason for having done so.

Fig 3

U.S. scrap exports: Year to date through March the U.S. exported 1.967 million tonnes of scrap, (Fig. 6) down 8.6% y/y.  Turkey continues to purchase the largest volume (0.564 MMT) but the y/y growth rate is only up 0.4%.  March volume was down 14.5% from two years ago. The next largest customer was Taiwan (0.272 MMT), down 21.4% y/y followed by South Korea (0.227 MMT), down 35.6% y/y, (Fig. 7). A surprise large volume entrant was Egypt whose purchases leapt 418% y/y to 0.200 MMT, close to the amount purchases in all of 2012.   China purchased 0.179 MMT, down 41.1% y/y. The U.S. dollar has been appreciating against the Broad index (a basket of trade weighted currencies). The result is increased scrap price making the U.S. a less attractive source for foreign buyers.  Europe steel capacity utilization remains soft resulting in abundant supply. In addition since 2010 Russia has been gradually relaxing its trade embargo on scrap exports. This has resulted in a shift in scrap trade patterns.  Turkey for example has shifted more orders to Europe and Russia and away from the U.S., (Fig. 8).

Fig 6

Scrap benchmarks: Chicago shredded, east coast export shredded and Rotterdam shredded scrap continue to track well. The differential range between the highest and the lowest metric is just $6 in May, (Fig. 9). Comparing Brent crude oil pricing to Chicago shredded indicates that shred is currently undervalued. The coincidental (nothing in common other than both being internationally traded commodities) index has a remarkably high 0.934 correlation coefficient, (Fig. 10).  Chicago shred tracks reasonably well (scrap may be substituted for iron ore and visa-versa) with iron ore (IODEX 62% delivered China).  Ore has been running higher than shred for some time but the gap is narrowing, (Fig. 11).  Scrap price is inversely related to the value of the U.S. dollar, (Fig. 12). This is because scrap is traded internationally in U.S. currency.  The dollar has been strengthening against the Broad index.

Fig 9

Steel Demand Indicators; Table 2 is a snapshot of the market situation on 05/14/13.  In most cases values are three month moving averages. Only 5 of 27 “Present” situation indicators are green, indicating strength by historical standards.  Nine are still depressed of which five are the construction indicators.  The trends analysis shows that all but two of the construction and manufacturing indicators continue to have positive momentum.  The situation for the steel long products sector is mixed, service center daily shipments declined for the 10th month in a row based on a 3MMA y/y.  Mill shipments of long products in Q1 were down year over year.  Overall trends are good with 18 of 27 indicators moving in the right direction.  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 2

This weeks contributors include; Laura Remington, Bryan Drozdowski, Peter Wright and Steve Murphy.

Commercial property price index: According to Real Capital Analytics, commercial property sales are off to a strong start in 2013, with sales totaling $72.8 Bn in Q1. The national all property price index was up 5.4% three months y/y and 5.9% on a 12 month basis, (Fig. 1). Apartments and hotel showed the strongest interest, yet gains were seen across the entire property portfolio. Lower rates and a firm outlook are expected to benefit the investment market for the balance of the year. Retail prices have increased by 8.1% over the previous three months, the best performance in the commercial segment. The number of distressed retail sales has fallen significantly over the last three months helping contributing to higher prices. During the past year major markets saw prices increase 6.5%, while non-major markets rose 5.3%. The CPPI has now recovered to 80.5% of the peak realized in February 2008.

Fig 1

Commercial property vacancy rates: Reis released their commercial property update for Q1 2013 on May 1st. Results were mixed. The good news is that apartment vacancy rates continue to tumble in all regions. The national rate was down to 4.3% in Q1, down from a high of 8.0% in Q1 2010. Absorption of apartment space is still far higher than completions suggesting that the construction boom for this sector is far from over. The vacancy rate for retail space fell to 10.6% from 11.0% in Q3 2010. The absorption of retail space was higher than completions in all regions but both are at very low levels compared to the boom years of 2000 through 2007. The surprise was that the office vacancy rate actually increased in the first quarter. In three out of five regions net absorption was negative meaning that more space was vacated than was leased. When combined with the small square footage of completions this drove vacancy rates higher in these regions. Only the North East had good performance in the office sector. Nationally the office vacancy rate fell to 17.0% in Q1 2013 from 17.6% in Q1 2011. At the national level, both completions of and absorption of office space have been at very low levels for 2 ½ years. Table 1 summarizes the Reis report by region and property type.

Table 1

Growth of GDP by sector, Q1 2013: The Bureau of Economic Analysis released the first estimate of Q1 growth last Friday. Growth accelerated to a 2.5% annual rate from the Q4 2012 rate of 0.4%. The major changes were in personal consumption and inventories, (Fig. 2). The personal consumption component grew from 1.28 to 2.24, inventories from negative 1.52 to positive 1.03. The non residential construction component declined from 1.28 to 0.22. Net exports and government expenditures were both a drag on growth. The April IMF forecast of US GDP growth through 2018 is very similar to the one the Congressional Budget Office made in February, (Fig. 3). Economy.com summarized the medium term future as follows; “Prospects for 2014 and 2015 are much brighter. Powered by pent-up demand and a revived housing market, real GDP growth will accelerate to near 4% in 2014, and job growth will consistently top 200,000 per month. The economy will have finally broken free from the long shadow of the Great Recession.” If accurate the prospect for 2014 will promote real steel growth above and beyond the recovery as business confidence recovers from the effects of sequestration and tax increases.

Fig 2

Employment Net Job Creation: Total nonfarm job creation for the month of April increased by 165,000, (Fig. 4). Over the last three months, job creation averaged 212,000 a month. Figures were revised upward for February and March, adding 332,000 and 138,000, respectively. February’s reading was the highest since May 2010. Seasonally adjusted nonfarm employment stands at 135.4 million, the highest since October 2008. The employment to population ratio has remained unchanged at 58.6, even after the big increase in February. The civilian labor force participation remained unchanged in April at 63.3, but has fallen since the start of 2013. This figure measures the share of the population 16 years and older who have jobs or are seeking work. The number of persons employed part time increased by almost 300,000 from March to nearly 8 million and 2.3 million persons were marginally attached to the labor force. This seemingly permanent unemployed/underemployed labor force is preventing the economy from gaining traction.

Fig 4

Employment Construction and Manufacturing: Total construction employment decreased 6,000 in April, the first decline since May 2012; however, nonresidential building construction employment increased 6,200. Nonresidential specialty trade contractor employment decreased over 11,000. Manufacturing employment for April remained unchanged from March. An extended spell of cold weather across the country may be at fault for the declines in construction and manufacturing. As spring and summer progresses, the employment situation for the two sectors will become clearer. Manufacturing added 528,000 jobs since its low point in February 2010. The recovery for construction jobs has not been as robust adding back just 261,000 over the same time period, (Fig. 5).

Fig 5

U.S. long product import licenses: April total long product import licenses were down 20% m/m and down 14% y/y. Rebar licenses plummeted 78% m/m and were down 18% y/y. Wire-rod licenses jumped 51% m/m but were down 37% y/y. Beams fell 20% m/m however are up 44% y/y. Merchant licenses rose 5% for the month and 20% y/y, (Table 2).

Table 2

ISM manufacturing and non-manufacturing indexes: The ISM manufacturing index declined by 0.8 to 52.07, three months y/y and is down 2.8 points y/y. The rate of expansion is slowing and the recent trend is bearish. The good news is by definition a reading over 50 indicates expansion. The ISM non-manufacturing index posted a value of 53.1 in April, up 2.1 points, three months y/y, but is down 0.4 points y/y. Its present trend is also negative, (Fig. 6). Economic activity continues to be hampered by a “hangover” from the fiscal cliff and sequestration debates. This has affected consumer confidence and spending patterns. There is a good deal of underlying strength (read potential) in the U.S. economy to include: Strong corporate and bank profits, favorable consumer debt service levels, increased housing starts coupled with rising prices, stable and improving employment situation and a very promising pent-up demand situation. Several economists expect the U.S. economy to accelerate during the second half of the 2013. An example is the Portland Cement Association which expects 3% GDP growth during the latter half of the year. PCA sites improved business confidence and increased political clarity to lead to accelerated employment gains thereby sparking accelerated growth.

Fig 6

This week’s contributors include: Bryan Drozdowski, Peter Wright and Steve Murphy.

Global steel capacity utilization increased to 78.9% (3 month moving average).  Crude steel production was 383.1 million tons up 1.6% y/y, (Fig. 1).  Capacity continues to increase (now stands at 2,041 million tons), while capacity utilization remains relatively flat.  In 2012 China produced 46.9% of global steel production, North America produced 8.1% (U.S. was 5.9%, Canada 0.9%).  Thus far in 2013, China produced 49.0% of global steel production, North America produced 7.7% (U.S. was 5.5%, Canada 0.9%), (Fig. 2).   The ratio of Chinese steel continues to increase on the global stage.  Yet despite continued promises to shudder obsolete and inefficient capacity, little has been achieved on this pledge thus far.

Fig 1

Apparent long products domestic supply, fell by 5.1%, three months y/y March 2013. Rebar was the only product group to post an increase, up 0.8%, three months y/y.  Wire rod volume fell the most, off 12.3% followed by structurals, down 8.1%.  On a y/y basis ADC was up 1%, led by rebar which was up a healthy 7.5%.  Momentum was negative across the board. U.S. shipments declined 4.4% three months y/y, with structurals down the most, -11.2%.  Beams a sub-index of structurals fell 12.8%, during this timeframe.  On a y/y basis U.S. shipments were flat at +0.2%, (Table 1).

Table 1

Construction put-in-place: Data released May 1st reports that total (inflation adjusted) construction was up 7.3% y/y.   The private sector was up 12.3%, while the public sector was down 4.9% y/y, (Table 2).  Residential was up 25.6% y/y and a stronger 34.5%, three months y/y, (Fig 3).   Non-residential construction also posted growth, up 7.6% y/y, albeit a little softer growth three months y/y (4.1%).

Table 2

Census Bureau construction data: Table 3 compares the dollar value (nominal) of construction put-in-place for residential and non-residential construction for the years 2006, 2009 and 2012.   The data is split into three categories: private construction, public construction and the total of these two.  In 2006 the construction sector was firing on all cylinders.   Total spending was $1,170Bn, 78% of which was private money, 53% residential and 47% non-residential.  In 2009 housing plummeted but non-residential charged on (2 year lag after housing starts and a 2 year run after housing cycle ends).  Total spending was $904Bn, 65% private, 28% residential and 72% non-residential.  In 2012 total spending was $851Bn, 68% private, 33% residential and 67% non-residential.   This data is presented as pie charts in (Fig. 4).  Comparing 2009 to 2012, one can see that the private sector is gaining in the residential arena, while non-residential remains subdued.  Public spending was strong in 2009 (ARRA), it declined quite a bit in 2012.

Table 3

Durable goods orders, fell 5.7% in March and are down 1.8%, 3MMA.  On a y/y/ basis, durable goods are up 0.5%, (Fig. 5).  A significant reduction in aircraft orders is responsible for most of the decline in new orders.   Shipments rose 0.4%, though unfilled orders fell and inventory build-up stalled.   Excluding the volatile transportation category, durable goods orders were off 1.4% in March.  The data indicate that manufacturing is weakening, yet vehicle sales continue to perform well (tracking toward 12 million units).  Other positive components include residential construction and domestic oil production.  Real GDP is up just 1.8% y/y, while nominal GDP is up a modest 3.4%.  These figures are low for an economy in recovery as is the spread between the two values.   The implication is that the economy continues to expand at a rate far below its potential.  This can be attributed to meager spending rather than a supply side constraint.   Despite the gloomy durable goods and GDP outlook the S&P 500 is reaching new highs. This coupled with low inflation point to stronger economic activity on the forefront.

Fig 5

Consumer confidence: The Consumer Confidence Index increased over 6 points in April, from 61.9 in March to 68.1 this month, (Fig. 6).  The Expectations and Present sub-indexes also increased from last month’s reading. The Expectations index ticked up to 60.4 from 59.2 while the Present index moved the needle dramatically from 63.7 to 73.3, its highest reading since November 2012.  The labor market details were varied.  The perceptions of current employment opportunities were muted for current conditions but much more optimistic on the future outlook.  Consumers planning to buy autos and appliances slumped in April while inflation expectations decreased from 5.8 in March to 5.5.   Consumers are still weary from the social security tax increase and worries about the effect sequestration will have on the economy. This coupled with political uncertainty in Washington have contributed to the high level of volatility seen in the index in recent months.

Fig 6

Portland cement consumption: on national basis was up 3.4% y/y in January, but growth patterns are quite varied across the country.  The South and Southwest are posting y/y gains while the Midwest and Northeast are recording y/y declines, (Fig. 7).  The strongest performance was in the West South Central (10.3%), followed closely by the South Atlantic (10.0%).  The weakest performance was in the Middle Atlantic down 12.4%.  Cement consumption is tied closely to rebar usage and a good indicator of overall construction activity. PCA’s spring 2013 forecast released April 30th predicts total construction put-in-place will top $535.6 Bn in 2013 and rise to $575.7 Bn in 2014.   The residential component is expected to be $208.4 BN in 2013 and $231.3 in 2014.   The non-residential portion is anticipated to be $100.7 Bn in 2013 rising to $117.6 Bn in 2014.  Public sector spending will make up the difference.

Fig 7

Regional job creation: The States generate employment data independently of the Federal Government.  In Q1 the States reported 44,000 more jobs created than the Feds, however over a longer time period these data sets agree quite closely.  Table 4 shows that all regions had strong job growth in Q1 led by the Pacific with 105,000 and followed by the South Central with 96,000; however the South Central is still the only region to have passed the pervious employment peak of Q1 2008, (Table 5).  Only seven states have surpassed the previous employment peak, these are West Virginia, Texas, Oklahoma, Massachusetts, South Dakota, Utah and Louisiana.

Table 4

Steel demand indicators: Table 6 is a snapshot of the market situation on 05/02/13.  In most cases values are three month moving averages. Only 5 of 27 “Present” situation indicators are green, indicating strength by historical standards.  Nine are still depressed of which five are the construction indicators.   The trends analysis shows that all of the construction and manufacturing indicators continue to have positive momentum.  The situation for the steel long products sector is mixed, service center daily shipments and inventories in three months through March both increased year over year.  Mill shipments of long products in Q1 were down year over year.  Overall trends are good with 18 of 27 indicators moving in the right direction.   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

This week’s contributors include Brian Drozdowski, Peter Wright and Steve Murphy.

IMF April 2013 forecast of global growth through 2018: The global GDP growth forecast for 2013 has been revised down to 3.3%, a slight improvement from the 3.15% growth in 2012, (Fig. 1). Forecasts for the US, Canada and Mexico for 2013 are 1.85%, 1.46% and 3.39% respectively. All three NAFTA countries are forecasted to decline in 2013 and to improve in 2014, (Fig. 2). In its discussion at the Spring Meetings in Washington, the IMF’s policy-steering committee drew sharp focus on the need to boost growth and create jobs. There was a strong and common recognition that achieving growth and jobs cannot rest on one policy alone. There is no single bullet that will get us to normal growth and some normality with regard to jobs. IMF Managing Director Christine Lagarde said a mix of policies can help to move the world beyond the “three-speed” recovery—where some countries are doing well, others are on the mend, and others are lagging behind. The Eurozone is a drag on the global economy, a blog by Jeremy Warner summed up the situation very well this week. “It's long been apparent that there are really only two permanent solutions to the single currency's malaise of the Eurozone. Either it must break up, allowing the magic of free floating currencies to restore economic equilibrium to Europe, or it must move rapidly to a full-scale transfer union, where surplus nations subsidize deficit economies. Instead of forcing Eurozone leaders to face up to this choice, the IMF acquiesces in sticking plaster solutions that fail to address the underlying sickness. If you prevent relative prices moving in the way they must to restore balance in the European economy, which is what the single currency effectively does, then the whole process of economic correction becomes virtually impossible.

Fig 1

Employment New Claims: For the week of April 13th, the advanced figures of new seasonally adjusted employment claims were 352,000. After last week’s revised total of 348,000, this week yielded an increase of 4,000, ( Fig. 3). The largest decrease in claims, 12,893, came from California, from the service industry. New weekly claims have averaged 367,000 since January 2012; however, the unofficial number for employment growth is under 300,000. This figure has a history of fluctuating week by week. The four week moving average of non-seasonally adjusted claims have settled around 330,000, far lower and in steady decline than numbers seen from the heights of the recession. The employment sector cannot fully recover with job creation in March only at 88,000 and new weekly claims hovering around 350,000.

Fig 3

U.S. steel production and capacity utilization: For the week ending 4/13/20, U.S. mills produced 1,858,000 tons, down 6.5% from the same month last year. The year to date total production is 29,179,000 tons vs. 30,893,000 tons for a decrease of 5.5% y/y. The YTD capacity utilization rate is 77.7%, ( Fig. 4). Table 1 presents a series of forecasts from the Worldsteel Association (WSA). WSA reduced its outlook for steel consumption growth in each of its last two forecasts for global, NAFTA and the U.S. WSA’s latest forecast projects a 2.9% global increase in 2013 and 2.9% for NAFTA consumption. WSA has significantly reduced its 2013 growth projection for the U.S from 5.6% in its April 2012 projection to 2.7% in April 2013. WSA projects a slight increase in U.S. consumption in 2014 to 2.9%.

Fig 4

Industrial construction starts: Power project starts are down 26.5% three months y/y after a huge expenditure year in 2012. Despite this, overall starts are up 7.4% three months y/y and 17.4% y/y, (Table 2). While power remains the largest expenditure category, production oil & gas is currently a close second, (Fig. 5) thus far in 2013.Fig. 6 charts the huge surge in money flowing into production oil & gas projects. The vast majority of these project starts are in the Southwest region of the U.S, (Fig. 7). Canada is also investing large sums in the energy sector, with emphasis on the Alberta oil sands. The boom in shale gas/oil and transmission projects is projected to continue for at least a decade.

Table 2

Industrial production index increased 0.4% in March and is up 0.9%, three months y/y and 2.5% over the past twelve months ( Fig. 8). The subcategory of motor vehicle parts rose 2.9%, after rising 2% in February. Utilities posted strong performance in March up 5.3% and up 10.5% for the quarter, its best performance in six years. This is the result of the unseasonably cold weather the country experienced this winter. The net result of the large jump in utilities causes the overall IP index to post gains, masking emerging weakening performance in manufacturing outside the automotive sector. Excluding auto and auto parts, manufacturing fell 0.3% in March. Overall capacity utilization stood at 78.5% in March, up 1.5% over the past three months, while manufacturing capacity utilization recorded 77.1% up just 0.1% over the same timeframe.

Fig 8

Architectural billings index: The ABI recorded a value of 51.9 in March, its eighth consecutive increase in as many months. Regional values include: 54.6 NE, 53.9 Midwest, 53.6 South and 51.9 in the West, (Fig. 9). This has traditionally been encouraging news with architectural drawings translating into construction activity in approximately one year’s time. Unfortunately the historical relationship has not held up since the end of the great recession as illustrated in (Fig. 10). In Fig. 10, the national ABI index is read on the left Y axis and Commerce Department construction put-in-place (for buildings only) is read on the right Y axis. Since there is a lag from drawings to construction the ABI is shifted forward to ‘match-up’ with construction put-in-place. The best correlation coefficient occurs when the ABI is moved forward by 15 months (0.88 from 1994 through 2010). Since 2010, construction has not tracked with the shifted ABI (C.C. = -0.10). In evaluating this chart, one must conclude that there are a lot of drawings sitting on shelves collecting dust. The Federal commercial and industrial loan survey suggests that both availability and demand for loans has greatly improved since the recession ended. Therefore it must be that business confidence is not where it needs to be for projects to get the ‘green light’ to proceed.

Fig 9

Dodge non-residential starts, were up 11.3%, three months y/y and 14.9% 12 months y/y. Apartment construction continues to boom and is now the largest category for total square-feet. Warehouses and parking garages are also big project categories, (Table 3). For the 12 months ending May 818.4 million square feet (MSQFT) of total projects were started in the U.S. for calendar 2012 this value was 794. The low point was 620 MSQFT in 2010. The most recent peak was 1880 MSQFT I 2007, (Fig. 11). The trajectory for growth remains on a very shallow slope. At the current slope, (which is similar to previous recoveries) it will take until 2016 to reach 1,200 MSQFT, (Fig 12).

Table 3

This week’s contributors include Bryan Drozdowski, Peter Wright and Steve Murphy.

U.S. Scrap Exports: Total scrap exports for February were 1.89 MMT, up 23.3% m/m and up 1.6% y/y, (Fig. 1). Once again Turkey was the largest consumer, taking-in 0.595 MMT, up 23.1% m/m and down 0.9% y/y. Scrap exports to China surged 81.3% m/m to 0.237 MMT, 3.5% greater than one year ago. Examining scrap exports by region totals; NAFTA (Canada & Mexico) trade accounted for 11% of the total. Asia, (Hong Kong, China, Thailand, India, S. Korea, Taiwan, Malaysia and Japan) account for 48%. Turkey alone accounts for 30%.

Fig. 1

Scrap price; busheling vs. shredded: The spread between composite busheling price (clean, low residual scrap, new factory sheet clippings, stampings, etc.) and the composite shredded scrap price (origin from automobiles (with engines, tires and gas tanks removed) as well as unprepared #1 and #2 steel, miscellaneous bailing and sheet scrap.) has all but vanished, (Fig. 2). In 2010 the average spread between the two grades was $71.64. The spread declined through 2011 to average $48.44 and further declined in 2012 to $17.68. Thus far in 2013 the spread is down to just $10.65. The spread compression is the result of more availability of busheling since the automotive sector has been strong since the end of the great recession, thus increasing supply. At the same time the price of pig iron (competing material substitute for busheling) has come down and leveled out, (Fig. 3). Note the profile of busheling pricing history is nearly identical to the Brazilian pig iron exports.

Fig. 2

Housing inventory, starts, price and foreclosures: Total housing starts in March exceeded one million units for the first time since July of 2007 on a seasonally adjusted basis. The South of the country led this growth, up 10.9% m/m and 58.2% y/y. U.S. Northeast starts dropped 5.8% m/m, but increased 12.6% y/y, (Fig. 4). Apartment structures, (five units or greater) rose 26.9% m/m and 82.3% y/y. Foreclosure activity was down 25.4% y/y, but up 2.3% m/m to 154,281 homes, (Fig. 5). The Case-Shiller seasonally adjusted price index was up 8.1% y/y. Inventory levels increased slightly in February, up 0.4 m/m to 4.7 months for existing homes, down 0.3 for new homes to 4.6 months on hand, (Fig. 6). Referencing Economagic, (Census data) the median price of an existing home sold was $246,800, up 2.9% y/y.

Fig. 4

Currencies: The Japanese Yen has been continually weakening against the U.S. dollar, reaching a 4 year low of 99.94 on April 11th, and declining nearly 17.2% on a y/y basis. On April 4th, the Bank of Japan announced measures of quantitative easing, expanding the monetary base in an effort to end the country’s 15 year period of deflation. The goal is to achieve an annual 2% inflation target. The G-20 Summit in Washington will most likely discuss Japan’s intentions, including the Yens’ precipitous drop in recent weeks, down 8.2% three months y/y. Conversely, the Mexican Peso is appreciating against the dollar, up 8.2% y/y and 3.6%, 3 months y/y. The U.S. steel industry will benefit from this as it should increase U.S. shipments into Mexico. The U.S. dollar is appreciating against the broad index, (a measurement of the Dollar relative to a basket of currencies connected to global trade). This makes scrap from the U.S. less attractive to buy on the global market and steel more attractive to sell in the U.S. The broad index has dropped 11.4% since its peak in March 2009, (Fig. 7).

Fig. 7

Producer price index for construction materials: The total PPI for materials and components of construction has increased 5.7% over the last 24 months, 2.6% y/y and 1.4% over the last three months, (Fig. 8). Inflation on non-residential construction is up, 3.7% over two years, 0.2% y/y and 1.7% three months y/y, (Fig. 9). Material price escalation is presented in Table 1 and shows that lumber, price is up 15.8% y/y and 2.3% m/m. A surge in single home and apartment construction is driving the increase. Over the same timeframe, bars, plates and structural shapes declined 9.6% y/y while wet uninstalled concrete increased by 2.3%. Historically home construction leads non-residential construction by 24 to 36 months. Both residential and non-residential construction, (insert) are trending up, however, the slope of the residential line is much stronger, (Fig. 10).

Fig. 8

MSCI Shipments and Inventory U.S. & Canada: U.S. MSCI March's outbound daily shipments for all carbon shapes reflected a 3.0% decrease compared to the previous month. The decline was driven by flat rolled (-3.7%), pipe and tube (-2.7%), structurals (-1.9%), plate (-1.8%) and bar and shapes (-0.8%). Daily intake increased 4.4% for all product led by 24.3% surge in plate, bar and shapes and a 13.5% boost for structurals. Overall inventories for all products groups were unchanged for the month. Rising inventories include: Structurals 2.9%, bar and shapes 2.1%, plate 1.7%. Decreased inventory levels include; pipe & tube and flat rolled, (Table 2). Canadian MSCI March’s intake daily showed an overall decrease of 10.2% for all product categories. All product groups posted declines with the exception of plate which increased 12.2% m/m. Shipments declined across the board by 2.7%. Inventory levels fell 2.3% overall, results were mixed amongst the various groups ranging for an increase of 4.1% for bar and shapes to a 3.2% decline for flat rolled, (Table 3).

Table 2

Steel Demand Indicators; Table 4 is a snapshot of the market situation on 04/18/13. In most cases values are three month moving averages. This month a row has been added for scrap exports in the steel section. The “Present” section of the general economy is OK but not great. Construction is still predominantly weak by historical standards but is rebounding rapidly, particularly in the residential sector. The present situation for the steel long products sector is mixed. Shipments at both the mill and service center level are historically low. In Q1 2013 mill shipments trended down year over year but service center shipments improved. Trends in the general economy and for steel are mostly negative but manufacturing and construction trends are all positive. This is a strange mismatch and will take time to play out. 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 4

This week’s contributors include: Aurora Quiel, Brian Drozdowski, Andrea Rubinstein, Peter Wright and Steve Murphy.

Total construction put-in-place forged ahead 7.6% y/y led by 12.8% growth in the private sector, (Table 1). Conversely public sector spending declined by 5.0% y/y and continues to be constrained by weak revenues in the face of increasing social spending demands. Single family home construction continues to grab the headlines with signals of strong growth and in percentage change y/y terms the headlines are correct, (Fig. 1). The base is very small relative to history (1994 to present shown). The past 12 month average housing expenditure ending February was $6.94 Bn. By comparison the 14 year average between 1994 and 2008 was $19.18 Bn, almost three times the current level.  

Table 1

Infrastructure construction put-in-place: Infrastructure spending bottomed in 2012 and has been stagnant ever since, reaching levels not seen since 2001, (Fig. 2). Highway paving, bridge and sewer construction have all declined sharply in recent years, (Fig. 3). Aging infrastructure will increasingly put the US at a competitive disadvantage with regions in the world that have invested in modern, efficient infrastructure. One third of America’s major roads need significant repair or replacement. According to a recent study by the American Society of Civil Engineers, 42% percent of urban roadways suffer from congestion, costing an estimated $101 billion in wasted time and gasoline each year.

Fig 2

Non-residential construction put-in-place grew 7.7% y/y, (Table 2). The private sector grew by 14.7% while state & local sectors declined by 3.1%. Both private and state & local spending is slowing as measured by weaker growth three months y/y (negative momentum). Apartment construction continues to perform well, up 54.4% three months y/y. Manufacturing building construction has shown a sustained rebound since it bottomed in 2011, (Fig. 4). Office construction reveals a picture similar to single family home construction, (Fig. 5). Up y/y in percentage terms, but bouncing along the bottom at an expenditure level lower than that realized in the middle 1990’s. Reiss Inc. reported that leased office space grew by just 0.12% during the last quarter while rents inched up 0.7%. Nationally, office vacancy stands at 17%, down 0.1% q/q.

Table 2

Durable Goods orders grew 5.6% in February from last month, with orders valued at $232,189 million from $219,880 million, (Fig. 6). A 95% increase in the nondefense aircraft subcomponent led the way for the jump in February. Defense communications equipment also rebounded from January with a near 26% increase in orders. These two large increases offset the reductions that came from construction machinery (-12.6%), power transmission equipment (-21.4%), and nondefense communications equipment (-20.3%). Economists predict that the increases in defense orders for February were a result from the automatic budget cuts that began in March. A more reliable indicator of business investment is core durable goods orders, which are total durable goods minus transportation equipment, which declined in February.

Fig 6

Institute of supply management manufacturing index declined 1.6 points m/m to 54.4 in March, (Fig. 7). Looking at it on a 3MMA basis paints a rosier picture as the index has improved for three consecutive months. There was some weakness in production levels and new orders were weaker than expected. Inventories rose 1% but manufacturers are not overly concerned at this point. In an encouraging sign an ISM survey of manufacturing customers revealed that 67% felt that their inventories were right where they should be.

Institute of supply management non-manufacturing index declined 3.1 points m/m to 51.3 in March, the second drop in the past three months. The new order sub-index fell 3.6 points to 54.6 after climbing a similar amount in February. The business activity index also fell but remains at a healthy 56.5, well above the 50 point threshold that indicates expansion. The evidence generally points towards a weaker economic trajectory moving into the second quarter of 2013. However, given the recent tax increases and reduced government spending, the economy seems to be exhibiting a fair level of resiliency.

Fig 7

U.S. initial jobless claims: Jobless claims increased by 16,000 last week to 357,000, surprising many economists who had anticipated a smaller number. On a 4MMA basis, the average was also up by 2,250 to 343,000 indicating a weakening picture. The longer term trend is definitely showing a downward trend, which points to a gradually improving job market, (Fig. 8).

Fig 8

Steel Demand Indicators: Table 3 is a snapshot of the market situation on 04/04/13. In most cases, values are three month moving averages. The “Present” section of the general economy is OK but not great. Construction is still predominantly weak by historical standards but is rebounding rapidly, particularly in the residential sector. The situation for the steel long products sector deteriorated in February as the three month moving average of capacity utilization declined to 70.4%. Service center long product shipments were down 10% year over year. Manufacturing indicators are mostly OK by historical standards. Trends for all construction and all manufacturing indicators are moving in the right direction. Overall 16 of 26 indicators are trending positively. 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 3

This week's contributors include; Aurora Quiel, Bryan Drozdowski, Peter Wright, and Steve Murphy.

US employment revisions: The BLS reported significant upward revisions to its jobs data. Nationally total revisions added 2.2 million jobs, or 19% to net payroll in 2012, (Fig. 1). Including the revised data, the economy has now added 5.7 million jobs since the bottom in February 2010 or approximately 66% of the peak achieved before the great recession. Despite the massive data amendment the unemployment rate (U3) remains the same as stated before the revision. State data revisions added a similar 2.2 million net jobs in 2012 for a 26.5% adjustment. The state revisions now closely match (within 20,000) the national number. Previous surveys showed large variances between the two data sets. Construction jobs were revised upwards by 4.3% revealing an additional 35,000 jobs. Most of these upward revisions were realized by states with storm damage.

Fig 1

NAFTA Beams: In 2012 offshore beam imports were 212kT to the US, 176k to Canada and 147kt to Mexico for a total of 535kt exported into the NAFTA zone. Within NAFTA, the US exported 630kT to Canada and 245kT to Mexico. Mexico sent 15kT to the states, while Canada sent 16kt to the US. The US exported 147kT to the rest of the world (ROW, beyond NAFTA). Mexico exported 52kT to the ROW. Counting exports within NAFTA the US was a net exporter of beams with a total tonnage of 779kT in 2012. During 2012, net beam imports into Canada were -789kT, while Mexico net imports were 325kT, Fig. 2).

Fig 2

NAFTA Rebar: The US was a net importer of rebar (325kT) as was Canada (789kt) while Mexico was a net exporter (-601kT). Total offshore imports to NAFTA were 980kT in 2012, 298kT to Canada, 680kT to the US and 33kT to Mexico. Houston Texas was by far the largest port of entry with 511kT (52%) of the total offshore imports into NAFTA. Within the NAFTA zone, Mexico sent 294kT to the US, while the US sent 528kT to Canada and 22kT to Mexico, (Fig. 3).

Fig 3

NAFTA Wire Rod: Offshore wire rod imports totaled 1,137kT in 2012 with 1,003kT arriving at US ports. Including NAFTA, Mexico (-311kT) and Canada (-252kT) are both net wire rod exporters. The US was a net importer to the tune of 1,402kT. More wire rod comes into the port at Houston (655kT) than all other NAFTA ports combined. Mexico exported 261kT to ROW while the US exported 36kT. Wire rod trade within NAFTA in 2012 includes: Canada to US 491kT, US to Canada 65kT, Mexico to US 25kT and US to Mexico 14kT,(Fig. 4).

Fig 4

Truck, rail and ocean freight update: Flat bed rates in the spot market have been tracking closely year over year since July last year,(Fig. 5). Through February 22nd, rates were $1.96 per mile, up 1.0% y/y, as capacity remained constrained. Looking ahead to 1H13, sluggish demand due to macro-economic freight softness is masking continued tight capacity as the secular migration to less labor intensive work (i.e. dry-van) attracts remaining drivers. The outlook for 2013 has improved slightly thanks to continued oil and gas demand, residential and non-residential construction, and the extension of the wind energy tax credit. (Source Cleveland Research Company). Rail freight; the railroads are hurting. The following data comes from Rail Time Indicators. “In non-seasonally adjusted terms, U.S. railroads carloads totaled 1,339,604 in January, down 6.3% from January 2012. In percentage terms, it was the biggest year-over-year monthly decline since November 2009, (Fig 6). Coal is the reason why overall carloads were down. In addition to coal, commodities seeing carload declines in January 2013 from January 2012 included iron and steel scrap down 18.7% and metallic ores down 12.2%. Ocean freight rates continue to be depressed with too much capacity chasing a reasonable demand level. Mid Ship Report states, “There is very little room for an operator to make a profit. Many of them are simply sitting on the sidelines unless of course they are burdened with ships on long term charter in which case they just have to endure the loss but at least have some cash flow”. The Baltic Dry Index is hovering at its 18 year low point as are the Capesize and Panamax components, (Fig. 7).

Fig 5

Long product market size: The total supply of long products for the 3 months ending February was 4.80 million tons, a negative 9.0% growth rate 3 months y/y. On a 12 month y/y basis the market grew 2.4%,(Table 1). All product groups posted negative momentum with an aggregate -11.4% y/y.  Structural angle and channels recorded the sharpest reduction, contracting 22.2% when referencing 3 months y/y and 12 months y/y comparisons. Import market share of long products was 15.9% in February. For the 12 months ending February 2013, import market share was 13.4%.

Table 1

Consumer Confidence: As expected, the Consumer Confidence Index fell sharply in March to 59.7 from February’s reading of 68.0, (Fig. 8). This is more than a 12% drop from the previous month. The Present Situation and Expectations Indexes also dropped this month, 5.7% and 15.8%, respectively, from their improvements in February. March’s Present Situation Index reading was 61.4 while the Expectations Index was 60.9. The overall decline was led by the steep fall in the Expectations Index. The budget sequester had created an environment of uncertainty, which results in a loss of confidence for consumers. The Index also surveys consumers’ assessment on job availability, job prospects, and future income, all of which fell in March. The fall in consumer confidence resembled the results in January, when the social security payroll tax increased two percentage points, to 6.2% from 4.2%.

Fig 8

This week’s contributors include Bryan Drozdowski, Peter Wright and Steve Murphy.

US scrap export by destination: In 2012, the US exported 22.086 MMT of scrap which was down 10.5% y/y. For the three months ending January 2013, scrap exports totaled 4.520 MMT. This is down 10.0% from the same period 12 months earlier, (Fig. 1). In percentage terms, Turkey accounted for 30.0% of total US scrap exports in 2012 which is up from 22.7% in 2011. Turkey imported 6.624 MMT, up 0.998 MMT or 17.7% y/y. On a three month y/y basis, Turkey took-in 1.369 MMT up 7.3%, (Fig. 2). The next largest consumer was Taiwan at 3.635 MMT in 2012, up 2.9% y/y. Chinese import volume showed a significant reduction. After bringing in 4.205 MMT in 2011, it consumed just 1.982 MMT in 2012 down 52.9% y/y. For the three months ending January 2013, Chinese imports of scrap were 0.432 MMT down 35.9% y/y.

Fig 1

Net imports: Net imports of long products in 2012 were 1.31 million tons, up 71.4% y/y, (Fig. 3). The big change occurred over the last four months of the year when comparing 2012 with 2011. In the last four months of 2011, the US had negative (exported more than took-in) long product imports of 70kT. Conversely over the last four months of 2012, net imports were 325kT. Breaking down net imports by product group: wire rod was up 12.8% y/y to 902kT, rebar quadrupled y/y to 315kT, and cold finished bars rose by 3.2% y/y to 111kT. Heavy structurals exported 812kT more than was brought-in, an increased export level of 25.9% y/y. Light shapes net imports were flat. Fig. 4 presents a comparison of net long, flat and pipe & rail, along with a table that compares the y/y changes. Net imports of pipe & rail are higher than flat-rolled and much higher than long products. All three product groups show significant y/y increase in net imports as the US economy is doing comparatively better than many other regions of the world.

Fig 3

Producer price indexes, (PPI), of construction products: According to the Bureau of Labor Statistics PPI data, the overall price of materials and components for construction has been rising steadily for over two years. The prices of wood and fabricated wood products are escalating extremely rapidly. The relative price move between structural steel shapes and softwood lumber has moved by 36% in the last two years and this trend is accelerating, (Table 1). Fabricated structural steel for bridges has also gained against pre-stressed concrete bridge beams in the last 12 months. In the last year, ready mix concrete has been tracking fairly closely with asphalt which gives no advantage or disadvantage to rebar demand.

Table 1

Manufacturing capacity utilization, inched up to 78.3% in February, for an increase of 0.28% y/y. During the period between July and October 2012, cap-U decreased a total of 1.42 points leading to concerns that the manufacturing sector was moving into a period of contraction, (Fig.5). Since October, cap-U has rebounded by 0.78 and has been positive for three out of four months. This trend is encouraging and indicates continued expansion. Construction of manufacturing facilities is reasonably well correlated to cap-U. There is a considerable lag in this relationship with cap-U leading construction by some 21 months. Should the relationship continue to be valid manufacturing construction expenditures will increase in 2013 and 2014, (Fig. 6).

Fig 5

U.S. industrial production index, is an indicator of how much utilities, factories, and mines are producing during a given month. The manufacturing sector is cyclical and accounts for roughly 20% of the U.S. economy. Although it’s a small percentage, the manufacturing sector is a good measure in changes in the overall economy. The IP index rose to 99.4965 for February 2013 from 98.6212 in January, (up 0.9% m/m and 2.5% y/y) its fifth consecutive month of increased production. The index has been on an upward trend since June 2009, 83.5261, the lowest point of production during the Great Recession, (Fig. 7).

Fig 7

MSCI shipments and inventory US and Canada: US February MSCI daily shipments for all carbon shapes reflected a 1.7% increase compared to the previous month, (Table 2). Results were mixed: plate, (-4.1%) and bar & shapes, (-2.2%) shipments were down, while structurals, (+14.1%), pipe & tube, (0%) and flat roll, (3.9%) were up. Daily intake dropped on all product groups a collective 10.9%, lead by plate down 17.4%. Inventory levels were down on all product groups except structurals which were up 4.0%, (Fig. 8). Months of inventory on hand averaged 2.50 over all products, ranging from 2.34 for structurals to 3.10 for pipe & tube. Overall Canadian shipments for all product categories were down 2.6% m/m. Structurals were up 5.3%, pipe & tube were also up (+4.2%), all other categories were down. Daily intake jumped 9.1%, with large percentage increases for pipe & tube, structural shapes and bar shapes. Plate was the only decliner, off 18.0% m/m, (Table 3). Overall inventory levels declined slightly, (-0.3%), while MOH averaged 3.84, (Fig. 9).

Table 2

Steel Demand Indicators: Table 4 is a snapshot of the market situation on 03/21/13. In most cases values are three month moving averages. The “Present” section of the general economy is OK but not great. Construction is still predominantly weak by historical standards but is rebounding rapidly, particularly in the residential sector. The situation for the steel long products sector is mixed, service center shipments in three months through February were down by 10.1% year on year. Manufacturing indicators are mostly OK by historical standards but are also all moving in the right direction. Overall trends are good with 18 of 26 indicators moving in the right direction. 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 4

This week’s contributors include: Bryan Drozdowski, Peter Wright and Steve Murphy.