Bruce's Commentaries / 11.20.2019

Market Insights – November 2019

Market Insights

Market Insights – November 2019 - Image

Published November 13, 2019

Thanksgiving

By: Bruce Shapiro

The economy looks better this month than it did last month. The six-week GM strike ended and did not have a big impact on the overall economy. Job growth continues to be good, except for manufacturing. Unemployment is very low and wage growth is stagnant at 3%. The Boeing 737 Max has not resumed flying but it is still being manufactured, yet   nondefense capital goods new orders were down .5% in September. Car sales and home sales are still at reasonable levels. Interest rates are down again, and the stock market is experiencing an uptrend and regularly reaching new highs.

The Material Handling Business Activity Index sharply reversed its September contraction and showed expansion in nearly all areas: business activity, capacity utilization, new orders, shipments, infilled orders, inventories, and future new orders. Only exports are in contraction.

GDP is at 1.9% for Q3 as the consumer continues to lead the economy, and consumer confidence remains strong.  The tariffs hurt manufacturing and our economy, but they still have not caused a major impact on the consumer. The other component of GDP, government spending, is up slightly while investments and exports are negative.

In the manufacturing world, the US ISM rose to 48.3 from its 10-year low of 47.8 last month. The ISM export component also rose to 50.4, the first expansion since June. New orders were higher but below 50. The Chinese Caixin also rose to 51.7, up from 50.4. The Eurozone continues contracting and does not look like it will turn around soon. The total of the three economies rose to 145.9 from 144.9. This indicates contraction, which is any number below 150, but things are looking better.

The world economy’s slowdown has certainly affected metals and the prices of scrap. Alcoa and Hydro forecast that world demand for aluminum will contract next year, which would be the first time that has happened since 2009. During the London Metal Exchange meeting at the beginning of the month, the Concord Resources CEO said there will be a “no-growth picture for metal commodities for the foreseeable future.” The 63-billet premium is the lowest in 15 years. Prime aluminum prices are down 7% for the year.

Scrap aluminum prices continue to fall. Prime scrap prices fell 4 cents per pound, although spot prime aluminum actually rose 3 cents. The supply of scrap continues to rise while the demand keeps dropping. The European primes and secondaries are down 30%. We are fortunate that the US primes are still very busy. Secondary scrap fell a little, partially due to the GM strike, but it is mainly an oversupply situation. Copper rose slightly while nickel and stainless steel fell slightly.

HRC had been below $500 per ton but has rebounded back to $500. Iron ore prices are at $85 per ton, and scrap steel prices were up $20 per ton after dropping $80 since August. George Adams, SA Recycling CEO, commented recently on the problems that car shredders face. He said it is very unusual for shredders to simultaneously face low steel prices, lower volumes and lower prices for Zorba, the nonferrous shreds from cars. This makes me glad we don’t have any car shredders. On a positive ferrous note, John Ferriola, departing Nucor CEO, said that Nucor is not altering its long-term growth strategy. “In fact, if anything… we tend to invest more and will focus on growing our company during this downturn,” he said.

It is the time of the year for giving thanks. I want to thank all of you for your support. May you have a safe and joyous Thanksgiving holiday filled with gratitude.

“You have achieved success in your field when you don’t know whether what you are doing is work or play.”  -Warren Beatty

Work safe. Work smart. Profits will follow.