Bruce’s Metal Market Commentary – January 2018

The trends and metrics for measuring the economy continue to be positive. Unemployment is very low at just over 4%. Industrial production, capital goods, lead indicators, ISM, PMI, car sales, and oil rig counts are either near records or not too far from them. GDP for Q4 came in a little soft, up 2.6%. GDP for 2017 as a whole was up 2.3%, compared with1.5% growth in 2016. Amazingly, the Atlanta Fed is forecasting GDP this year at 4.16% growth while the New York Fed is forecasting 3.09%. Economics is an interesting “science.”

Last month I commented on Byron Wein’s 10 biggest surprises for 2018, and his prediction that growth will be more than 3%, approaching 4%. Wein also predicted last month that the stock market would correct by 10% this year. Other people have mentioned that, too, including Alan Greenspan. On February 1, Greenspan talked about the “bubble in stocks and bonds.” Both predictions were accurate, as the market did start a correction on February 2. Bitcoin also went crazy and got to $20,000 a few weeks ago, before crashing to $6,000 this week. Nothing can continue to go straight up indefinitely.

There has been a lot of talk about the worldwide growth in manufacturing and economies, and not just in the US. The increased demand in commodities goes along with this. Greenspan also said in his February 1 talk: “We are dealing with fiscally unstable long-term outliers in which inflation will take hold. I think we are getting to the point now where the breakout is going to be on the inflation upside. The only question is when.”

For the last 30 years, we have heard many discussions about inflation. When you see what is happening with metals, inflation looks very realistic. The anticipation of Section 232 has raised the price of steel and aluminum.

Although helping the appliance industry by placing tariffs on washing machines is good if you make the items, it’s bad for consumers, as it has raised prices. This type of protectionism will continue to add to the costs all consumers pay. I am in favor of trade agreements, but adding tariffs is not necessarily good for the US. Last year China was the largest exporter of goods at $2,098 billion, followed by the US at $1,455 billion and Germany at $1,346 billion. If trade wars break out, who benefits?

Core inflation, not including gas and food, last year was 1.8%. If you include gas and food, it was 2.1%. With what I see in the economy and metals, I believe that inflation will start creeping up. Generally, when that happens, the Fed will start applying the brakes and raise interest rates more than already forecast.

Most prime metals started the month about the same as last month. Scrap aluminum prices did move up based on higher freight costs and increased demand. Most prime grades were up $.035 per pound, and secondary aerospace grade turnings were up $.03 per pound. Nickel prices moved up from $5.75 per pound last month to $6.14 per pound this month. 304 stainless prices were up $67 per gross ton and 316 is up $135 per gross ton. On the ferrous side, iron prices are still in the mid-$70 per ton range and hot rolled coil is close to $740 per ton. Most of the scrap steel prices held the January levels.

“An individual can make a difference. A team can make a miracle.” –Posted on the entrance to the Eagles’ locker room. What a game!!

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