Market Insights / 12.12.2018

Bruce’s Metal Market Commentary – December 2018

Bruce’s Metal Market Commentary – December 2018 - Image

I was so touched by hearing about the life of George H.W. Bush. This man exemplifies all the attributes that most of us aspire to, no matter which political beliefs you hold. He was a WWII hero, CIA chief, US Ambassador to the UN, Ambassador to China, a member of the House of Representatives, Vice President and President of the United States. He was a brilliant public servant who put the country first. Alan Simpson (R), US Senator for Wyoming, and a close personal friend of Bush, said this about him: “You would have wanted him on your side. He never lost his sense of humor. Humor is a universal solvent against the abrasiveness of life. He never hated anyone — he knew what his mother and my mother always knew: hatred corrodes the container it’s carried in. The most decent honorable person I’ve ever met was my friend George Bush.”

That is a hard sentiment to follow. However, there is still a lot to discuss in the world of metals and economics. The US, Canada and Mexico signed trade agreements although there are still many issues to be resolved. Leaders of the G20 met, and the US and China might have agreed to lessening some tariffs implemented during their trade war. President Trump gave the Chinese government 90 days to act or he would announce more tariffs. We all have a vested interest in ending the trade war.

Shortly after the announcement that the US and China might be working toward a trade deal, the Huawei CFO – who is the daughter of the company’s founder – was arrested by the Canadian government at the request of the US. I read that the American equivalent would be if Steve Jobs’ daughter were arrested in another country at the request of China. This situation certainly will not help trade relations.

Oil prices have plunged in the last two months. The stock market also has had a considerable correction, but it is still up about 40% since President Trump was elected two years ago, and it has quadrupled from the lows of March 2009. GDP for Q3 is up 3.5% and the ISM Manufacturing Index also rose sharply from 57.7 to 59.3. Weakness continues in car sales, which should end the year at 17 million units. Forecasts for 2019 are at 16.6 million units. Housing, which is one-sixth of GDP, has also been weaker this year, in part because of the interest rate increases. Inflation as measured by the core PCE (personal consumption expenditures) is still below 2%.

Durable goods, manufacturing and industrial production are still strong. Manufacturers have added 300,000 jobs in the past year, showing the best jobs growth since the mid-1990s. But that growth does not include any jobs shifting from China back to the US, indicating the hoped-for re-shoring will not happen. Consumer sentiment is also good.

The Chinese economy continues to slow, as reflected by the Caixin and the official PMI. Both are barely in the positive stage, which is anything above 50. China faces energy issues from burning coal at old power plants and the resulting pollution. Consumer spending is down, as are cars sales, falling 12% year-over-year and 30% just in the first half of November. China’s GDP is still over 6% and the government has many tools to stimulate the economy but leaders also want to lessen some of the country’s debt.

Prime aluminum prices have fallen every month this year since May and are flat, coming in at $1.08 per pound this month. That is the lowest monthly price all year. Scrap continues to be plentiful, and consequently, scrap prices are down. The US government has extended the Rusal sanctions deadline once again, now moving it to January 21, 2019. The common thinking is that the conflict will be resolved and Rusal metal will continue to flow. Edward Meir at INTL FCStone forecasts that average prime LME aluminum for 2019 will be at $1,950 per ton. His 2018 forecast was $2,090, which was under by just $40 per ton. Not bad.

Aerospace turnings slid this month to $.32 per pound, a 40% drop from their May highs. Secondary aluminum prices continue to be a disaster. There is some talk about it bottoming out. I hope so. Copper this month is a little stronger, but prime nickel continued its 6-month fall, as did stainless steel. Ferrous prices have been flat all year, with a range of only $32 per ton. With scrap plentiful, the mills are very busy. Hot rolled coil has fallen to $760. The scrap steel markets continue to be fairly well balanced.

As we close out 2019, I want to thank all of our suppliers for your faith and trust in us. We will continue to work on Lean Recycling processes with you to boost efficiencies and yields. We sincerely appreciate your business.

We wish you all happy holidays and a healthy new year.

“If you have integrity nothing else matters. If you don’t have integrity, nothing else matters.”  -Alan Simpson.

Work Safe. Work smart. Profits will follow.