Bruce's Commentaries / 08.10.2018

Bruce’s Metal Market Commentary – August 2018

Bruce’s Metal Market Commentary – August 2018 - Image

GDP for Q2 grew 4.1%, which is the best pace in nearly four years. Some of the increase was due to higher soybean exports to China to avoid the new Chinese soybean tariffs. Consumer spending was also the strongest in over three years. Most manufacturing indicators continue to be strong, although cars and housing are down slightly. The PMI also dropped to 58.2 from 60.2, but it is still a strong, positive number.

The trade war continues to be a major factor for many of us in the metals business. Threats and reactions continue to disrupt metal and manufacturing prices. The cost of many metal raw materials used for product manufacturing keeps rising because of tariffs. How we compete with increased metal costs and increased competition from manufactured foreign goods remains a concern. Many consumer product prices are increasing because of the tariffs. When this starts making an impact on the price of goods at Walmart, consumers will start to understand how the tariffs affect them. Many unfair trade issues needed to be addressed, but the strategy of how we address them is a question mark for me. We do have the World Trade Organization that arbitrates between nations, and the United States has won well over 90% of the cases brought to the WTO.

China’s economy has been slowing down slightly. Their PMI is dropping, hovering just above 50, and their currency is also weakening. The Chinese also have put tariffs on many goods we export to them. The scrap industry has experienced not only tariffs, but also many restrictions on which scrap materials China will accept. The net effect is that very little U.S. aluminum scrap is now being exported because a large percentage of the nonferrous scrap generated from the end-of-life vehicle shredding previously was exported to China. Now that that has stopped, the metal is being sold into the secondary aluminum market.

Metal prices have reacted accordingly because the additional supply has caused secondary scrap prices to drop. Aerospace chips are now at their lowest point in two years. Primary aluminum prices also have been dropping since the middle of April, when they spiked with the Rusal trade sanctions. Prices have nearly returned to their pre-sanctions levels now that Rusal metal is flowing again. Primary scrap prices have lowered accordingly and are about the same as they were in March. Copper prices are down to where they were a year ago, stainless steel prices have dropped and nickel prices also have dropped, but not as significantly.

Hot rolled coil prices have finally dropped to below $900, and the futures markets forecast lower prices for the balance of the year. That, of course, is subject to change. HRC prices are up over 40% from the beginning of the year. Scrap steel prices are down this month. Most steel exports are softer due to tariffs and Turkish currency weakness. Turkey is a large US scrap consumer and they have substantially reduced their buying. This morning President Trump announced on Twitter that he had authorized doubling the steel and aluminum tariffs on Turkey, to 50% and 20%, respectively. That news quickly led to a significant dip in the value of the Turkish lira against the US dollar. It remains to be seen if the US will indeed move forward with the proposed tariff increases and what the ripple effect will be for domestic scrap.

“With good people you will never have a bad deal and with bad people you will never have a good deal. That can truly be chiseled in stone. Not just for scrap people but for everyone.” Ken Pucket, former FBI agent who got into the scrap metal business 50 years ago.

Work Safe. Work smart. Profits will follow.