Bruce’s Metal Market Commentary – December 2017

What a dramatic end to the year.  The tax reduction plan has passed through Congress and now will go to committee.  I was hoping that Congress would have passed the infrastructure spending bill first.  This would have helped the economy and many people in the metals business.  The anticipation of the tax cuts and the strength in the economy has pushed up the stock market values over 30% in a year.  Consumer confidence is very strong and business looks good going into next year.

GDP for Q3 finished at a very strong 3.3%.  Leading indicators continue to be positive.  Nondefense capital goods excluding aircraft is down slightly after 2 strong months.  Almost everything else is up again including durable goods, total industry capacity utilization rate, industrial production, factory orders, ISM, and the oil rig count.  Car sales are down slightly but still at an annualized rate of 17.4 million.

Anything to worry about?  We are in a consumer-driven economy.  The economy has been in expansion for the last 8 years.  There are some signs of weakness that the consumer is tiring.  Credit card delinquency rate is starting to go up.  Personal savings have fallen by over 30% in the last 2 years.  Disposable personal income is still going up but at a slower rate.  The cut in taxes might alter this trend.  It is interesting to see some other trends that might take the bloom off the rose.

China’s growth rate is targeted for 6.5%.  Their PMI and Caixin are both positive. Chinese exports and imports for November were way up over 12% for the month.  This happened at a time when they were trying to slow down the industry to reduce pollution.  The steel prices in China have also been strong.  These higher prices are reflected in higher export prices.  Consequently, US steel prices can also go up. Bush prices are up $20 per gt this month.  These prices have also been pushed by the Turkish demand for scrap.  Bush prices for this year were over 45% higher than 2016.

Prime aluminum prices started the month 4 cents under last month.  Chinese aluminum inventories are at a record high.  Despite their strong economy and the supply cutbacks, inventories are going up and it seems like the demand is not responding as well.  On the prime scrap side, prices have fallen about the same.  Consumers are still not interested in buying for December and some have pushed out their demand for metal until February.  Secondary scrap was affected by Real Alloys, the largest US secondary, filing for Chapter 11.  Fortunately for us, we had no debt exposure to them.  With that disruption in the market, secondary prices weakened as the secondary producers with money were deluged with metal.  Aero turnings prices are down 2 cents this month.  Secondary aluminum prices for the year are up about 10% from last year while prime scrap prices are up 20%.  Copper prices have also been steady.  Nickel prices dropped 10% and stainless steel scrap dropped about 5%.

I wish all of you a Merry Christmas and a very healthy New Year!

“There are no secrets to success.  It is the result of preparation, hard work, and learning from your failures.”  Colin Powell

Work safe.  Work Smart.  Profits will follow.