Bruce’s Metal Market Commentary – March 2019

Published March 12, 2019

There is an old Chinese proverb that states, “You should live in interesting times.” Actually, it is often said as a curse. Right now, we are certainly living in interesting times. Headline news includes a record $890 billion trade deficit for 2018, which is a 10-year record. The budget deficit is estimated at $1 trillion, and the GDP, which was close to 2.9% growth last year, is forecast to be about 1.5% for this year. Global GDP is still forecast at a very decent 3.0% to 3.5% growth rate, but it is trending down. Brexit, whatever that means, has not been resolved. Tariffs, which have hurt most consumers, manufacturers, and farmers, continue to be debated by leaders. Tariffs are also damaging the global economies and raise the question of whether we are facing a trade recession. And yet, despite softness elsewhere, the stock market is still very strong.

GDP is 70% consumer based, and although consumer confidence is still good, it is also trending lower. The employment rate is good and inflation remains in check. The Federal Reserve has signaled it will not be raising interest rates for some time. All of these are positive signals. But the indicators that affect manufacturing are trending down. Nondefense capital goods new orders, durable goods, and industrial production are

flat. Automotive sales will be weaker this year, as will housing. Most of the lead indicators I follow are also soft.

The Chinese are also living in interesting times. They continue to lower their “official” growth rate closer to
6%. That number is issued by their government and is not usually credible. What is credible is that the Caixin has been in contraction for the last three months. The Caixin was up from 48.3 in January to 49.9 in
February. That is better, but it is still in contraction because it remains below 50, the marker between expansion and contraction. The official PMI was also below 50. Tariffs have also hurt the Chinese. The good news on that front is we did not impose another $250 billion in new tariffs. Hopefully sometime soon there will be an announcement about a reduction in tariffs for all. Many more difficult trade issues with China are on the table including trade deficits, intellectual property rights, Chinese government subsidies to industry that distort markets, cyber intrusion, technology transfers, and compliance issues. Those issues will take a lot longer to settle.

In the metal world, prices have stabilized this year. Prime aluminum has been a little stronger and the demand for prime scrap has also increased. Since Section 232 was implemented the all-in price of prime is up about 5%. Billet prices are up 9.1% and as an indicator of sheet products, 5052 sheet is up 28.4%. I have attached insight from Harbor Aluminum explaining this in more detail. Secondary aluminum has been steady.

Copper and nickel prices have been stronger due to better demand in China. 304 and 316 stainless prices were up sharply in March with the higher nickel prices. Ferrous scrap was also up about $20 per gt, in part because of freight problems and more foreign demand. Steel producers are still busy. As an interesting

comparison, last year Chinese steel production was up 75 million tons, or about 12%, and the US produced a total of 86 million tons for the year.

“Some people want it to happen, some wish it would happen, and others make it happen.” Michael Jordan Work Safe. Work smart. Profits will happen.