Shapiro Metals Market Insight – October 2020

Published October 13, 2020
October 2020 Market Insight

Join me on a mental journey back to October 2016. Polls showed that Hillary Clinton stood an 85% chance of winning the presidency, the Dow Jones average was 18,000, GDP was 1.7%, and the unemployment rate was 4.9%. Imagine if at that time someone asked for odds on a bet that October 2020 would put the Dow at a near record high of 28,000, and the NASDAQ and S&P 500 also would be near record highs. Included in the bet is an unemployment rate of 7.9%, 10 million people out of work, well over 210,000 dead from a pandemic, the highest national debt in decades, and a Fed bank borrowing rate of almost zero. The Vegas odds on that bet – and on any sane person placing it — surely would have been interesting.

Most people have decided who they will vote for considering we’re only three weeks from the election. Voters’ major issues are the Covid-19 pandemic, the economy, Chinese tariffs, healthcare, government regulations, judicial choices, abortion rights, climate change, and race relations, just to name a few. I am certain on three things about in this election. First, everyone agrees that the candidate they will not vote for is the worst person ever and will destroy democracy — and everything else. Second, whoever wins must bring the country together and help us heal our divisions. Third, it is critically important to vote, vote, vote!

For years, I have followed Edward Meir, director of commodity research at ED&F Man Capital Markets, whose specialty is nonferrous metals. He is one of the most accurate commodity forecasters, and I’m including an excerpt from his Sunday, October 3, 2020 analysis, which supposes a Biden victory based on current polls.

“In the case of base metals, prices should move higher on a Biden victory not only on dollar weakness, but also on investors reassessing the US/Chinese relationship and possibly discounting a likely alleviation in trade tensions between the two countries; ditto for US trade relations with Europe and Canada.”

“Conversely, in the unlikely event that Mr. Trump wins and should the Republicans also hold on to the Senate, we think equity markets will rise sharply and the dollar should strengthen markedly. We could then see a rather sharp selloff in both the precious and base metals, with the base group being dragged lower by expectations of heightened trade tensions staying in place with China. On the other hand, if Mr. Biden wins and the Senate remains in Republicans hands, we will likely see an equity and dollar rally, while base and precious metals could suffer as the resulting deadlock would be construed as a tie where nothing dramatic will likely happen given the split in power sharing. All in all, it should be an interesting few weeks and we look forward to checking in with our readers postelection!”

None of this is my opinion and is subject to all legal disclaimers, but I thought it was worthwhile. Take it for what you think it is worth.

We are all well aware of the Covid-19 risk and are awaiting a stimulus plan. These are the main factors affecting our businesses, considering the high unemployment rate and daily news about how this is hurting our economy.

A friend of mine flew an aircraft tanker in Vietnam. He was trained by his flight instructor to “always trust your instruments,” otherwise you might “believe” you are flying upside down. Listening to and reading the news almost makes me believe I am flying upside down, so here are some interesting facts showing up on my “instruments”:

• Bankruptcy filings were higher in Q1 than they are now.
• Disposable personal income was about 8% higher from April through September than Q1.
• Nondefense capital goods new orders [excluding aircraft] rose 1.8% in August, while durable goods [excluding aircraft] rose .4%.
• Home sales and car sales are strong, as is most manufacturing except aircraft and anything oil related.
• The ISM PMI is strong and consumer confidence is growing.

WOW!

The Shapiro Nonferrous Scrap Metal Index of our top 50 manufacturing accounts was 14% higher in September than July and August. It was also just above February, our best month this year. The auto sector is 16% above Q1 volumes, but aero and the trailer business are down about 25% from Q1. Building and construction is up slightly while HVAC remained the same. Q4 is generally slower and with all the uncertainty we expect it to be rocky this year. China is in a V-shaped recovery after suffering through the pandemic in Q1 and achieving better success with bringing the virus under control. The Caixin and official PMI continue to be in growth territory. Exports have reached a three-year high due to pa related product demand. Europe is experiencing spotty growth similar to the US, although their Covid infection rate is lower.

October metal prices are interesting. Prime aluminum prices dropped 6 cents from last month due to the US exempting Canada from Section 232 if they meet certain restrictions, which are too complex to go into here. The Midwest premium and LME both dropped about 3 cents per pound, however the demand for scrap remains strong and most of the prime scrap prices traded from a half cent to a penny higher. The same is true for secondary scrap prices, which moved up 2 to 3 cents a pound thanks to the auto sector’s strength and lower quantities of some scrap items. Spot copper and nickel also traded lower, while scrap copper prices fell in line with prime. Stainless steel prices dropped a little, and US steel mills are running about what they were in August. Scrap steel prices were steady, but HRC made highs at $630 per ton.

Be well. Be safe. Life is good. Family is precious.

Bruce Shapiro

“I do not mistrust the future; I do not fear what is ahead. For our problems are large, but our heart is larger.” -George H.W. Bush