Bruce’s Metal Market Commentary – April 2019

Published April 15, 2019

My brother is 4 years older than I am. When we were little and had a fight, I would say, “I don’t like you, but I love you.” I feel the same way about the economy as it continues to chug along since the Great Recession. New orders of nondefense capital goods, excluding aircraft, had their biggest gain since last July and the total industry capacity utilization rate is the highest in 2 years. The ISM is back up after 2 down months. Consumer confidence as measured by the University of Michigan rose 4 points last month. Job growth is good and inflation is in check. However, autos, housing and capital equipment are a bit slower.

I have started watching an industry survey: the Material Handling Industry Business Activity Index, published by Prestige Economics. This survey is taken monthly from the manufactures in this industry and is a good leading indicator. It is based on capacity utilization, new orders, unfilled orders, shipments, inventories and exports. All are in expansion mode except for exports and inventories, which are in contraction. This is the strongest report since this survey’s inception in 2015.

In China, the PMI and Caixin reversed 4 months of contraction to go slightly above 50 in March. Industrial production was down to a 17-year low, and exports were down 21% year-over-year. Car sales have been down 8 months in a row. Trade uncertainty is affecting China as well as the US, although there has been much talk about a trade announcement emerging soon that would benefit both countries.

I have been reading about the problems with the amount of Chinese debt and the number of bankrupt companies. China has put off dealing with this for a long time by pumping more money into its economy. Eventually, this bubble will burst; the question is when. The part of our economy that I don’t like is the growing trillion-dollar budget deficit. We, too, will have to deal with this at some point.

Metals have been boring this year. Aluminum and steel continue to trade in a narrow band. Copper and nickel are up due to low inventories. Stainless steel has rebounded the most this year and is up 25% due to nickel and demand. I don’t see a lot of change in the metal prices in the near term.

“When you are through trying to improve, you are through.” -Vince Lombardi Work Safe. Work smart. Profits will follow.