Bruce’s Metal Market Commentary – July 2019

I might have to change the name of the Metals Commentary to the Trade Wars Commentary. In June, 600 large corporations, including Walmart, Costco, Target and Gap, and numerous trade associations sent a letter to President Trump requesting the removal of US tariffs on Chinese-produced goods. The group prepared an analysis that showed the trade wars are hurting the economy and would reduce the GDP, lead to a loss of more than 2 million jobs and cost the average American family $2,300 per year.

Durable goods were down again in May — 1.3% after falling 2.8% in April. Nondefense capital goods excluding aircraft were mixed. New orders were up slightly in May after falling in April, and the shipments were up slightly in both April and May. Car sales and housing are slower, but industrial production is up. Confidence indicators were also lower, as reported by the Conference Board, NFIB Optimism report and the Michigan Consumer Confidence report. A strong jobs report was the good news in June.

All the global PMI reports are weaker. Both the Chinese Caixin and official PMI are below 50, as is the Eurozone PMI. The US is still over 50 but also fell last month. The combined global number was the lowest in over three years. The Material Handling Industry Business Activity Index came in mixed for June. The overall business activity index fell from its all-time high in May – it stands at 50, down from 81. New orders also fell from an all-time high of 86, down to 45. Also falling were shipments, unfilled orders and exports. Capacity utilization and future new orders were higher.

Metal prices are close to June prices. Prime aluminum was up one cent while prime scrap prices were flat. There is still very little demand from the prime mills due to the same issues discussed before, and the oversupply looks like it will continue for some time. The secondary prices were lower with aluminum turnings and auto shreds hitting a 10-year low — the lowest point since April 2009. Yuck!! Copper and nickel were up slightly while stainless fell.

The steel story is interesting. Chinese iron ore has hit recent highs and its new steel prices are near an 8-year high, but production is dropping. China’s current industrial production is up 5%, but that is the slowest in 17 years. Car sales are down 16% and auto production was also down 21% in June. In the US, HRC continues to drop after falling in June to just above $500 a ton. Steel mill production has dropped below 80% in the last two weeks. Scrap steel prices for July were flat after falling three months in a row.  Commentary on the effects of the steel tariffs is that the higher prices are leading to permanent demand destruction.

“Challenges are what makes life interesting and overcoming them is what makes life meaningful.”  -Joshua J Marine