Bruce's Commentaries / 04.05.2018

Bruce’s Metal Market Commentary – April 2018

Bruce’s Metal Market Commentary – April 2018 - Image

Tariffs, tariffs, tariffs. We will be talking about them for a while. In March, President Trump announced Section 232 tariffs on steel and aluminum and made statements that no country would be exempt. In the following weeks, most of our allies received temporary exemptions.

The short-term effects of 232 are not very good for manufacturers and consumers. Hot rolled coil went up over $100 per ton in March, to over $850. Aluminum prices from distributers also rose. Chinese iron ore prices were close to $80 per ton at the start of the month, but after the 232 announcement they fell to $70. After China announced its counter tariffs, iron ore fell to $63 per ton. Scrap steel prices in the US will be up about $10 to $20 per ton. You may be wondering how there could be lower to flat raw material prices and higher finished goods prices. Great question. It is good to be a steel producer today. They are printing money. This is not good for manufactures and consumers. Manufacturers will pay higher prices for domestic steel and for imported steel coming in from the non-exempt countries, they have to pay a 25% duty or be fined. Higher prices will also make it more difficult for many domestic companies to compete with foreign businesses.

We’re now in round two of the tariff wars, with China’s proposal for tariffs on more than 100 products, including soybeans and scrap aluminum. The US is talking about imposing more tariffs on $60 billion of imports, and China is considering the same. Section 232 was eventually watered down and I believe that this second round of tariffs also will also be watered down. Both countries will negotiate behind closed doors to arrive at mutually agreeable terms, and eventually, both will declare victory and call a truce. North Korea is one of the critical factors in these negotiations, and nuclear talks with that country are supposed to begin in two months. China is critical in bringing about any settlement and it will push for securing a better trade deal for itself if we want to achieve a North Korea nuclear disarmament.

I have included a 2017 copy of our trade deficit and surpluses with China. In general, we had a $372 billion deficit with China, consisting primarily of computers and electronics, electrical equipment, miscellaneous manufacturing, and apparel. Our surplus with China is about $50 billion, with farm crops making up $15 billion. By the way, scrap was high on the surplus list, at over $5 billion.

In the real world, economic news is a little softer. GDP for Q4 was revised again to 2.9% growth. The Atlanta Fed started the year with an early Q1 GDP forecast of 4% growth, but it is now calling Q1 at 1.8%. The consensus range from other economists is from 2% to 2.5% growth. Durable goods, excluding aircraft and cars, are up 1.2%. Industrial production, total manufacturing, and oil rigs were better in March. Car sales rebounded slightly in March and the ISM was down slightly. The Chinese indicators are also largely unchanged and still in positive territory.

The PMI pricing index had its largest increase since April 2011, with 17 of the 18 monitored sectors up in March. Besides 232, freight issues are one of the biggest sectors causing all prices to go up, and the scrap industry is experiencing tremendous freight cost increases just like everyone else. We will see if any of the new trucking regulations get changed in the near future and can reduce freight costs.

Metal prices this year continue to be flat. Primary aluminum dropped this month as the LME price has gone down and the Midwest premium has topped out. Prime scrap prices are almost unchanged, as are the secondary prices. Copper, nickel and stainless are also flat. Steel prices for April have not settled out yet, but are expected to be slightly higher.

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