Bruce's Commentaries / 01.10.2020

I Think I Know But I Don’t. [Acronym: ITIKBID]

I Think I Know But I Don’t. [Acronym: ITIKBID]

I Think I Know But I Don’t.  [Acronym: ITIKBID] - Image

I Think I Know But I Don’t.  [Acronym: ITIKBID] 

I use this saying a lot in my life, and it applies to this report. The macro outlook continues to be favorable. GDP, unemployment, housing, consumer spending, and consumer confidence all are positive. Car sales have been at 17 million for five years, the stock market is strong, and the Fed sees little risk of a recession. Plus, 57% of small businesses are experiencing revenue growth. The NFIB reports that current orders are weak, but future orders look strong.

For those of us involved in metal manufacturing, it is a different story. Although nondefense capital goods orders, excluding aircraft, were up slightly in November along with total industry capacity, the ISM manufacturing index dropped to 47.2, its lowest level since June 2009. European manufacturing has been below 50 for the last 11 months. The scenario has been better in China, where both the official PMI and the unofficial Caixin have remained in positive territory for a few months. The Material Handling Business Activity Index was mostly positive in December; only new orders fell, while exports continue to be weak. The Shapiro Nonferrous Scrap Activity index for the same 50 top accounts was up more than 5% year-over-year. Smart manufacturers just operate better.

The manufacturing recession we have endured for some time is due to trade wars and business uncertainty. Metal manufacturing now represents only 8.4% of the workforce in the US. Although December brought jobs growth for the economy, manufacturing jobs fell by 12,000. Mining, transportation, and warehousing fell by 20,000. The US Commerce Department reported that consumers and businesses have paid for the bulk of the trade war tariffs. Another little-known fact is that farmers have received $28 billion in subsidies in the last two years through a government insurance plan. With those costs, I would think the economy would be ugly. ITIKBID.

On January 15, we will have a signed Phase 1 trade agreement with China. We should also have a deal with Mexico and Canada soon. This should be positive for the economy and could help to stimulate it. The forecasts I read are calling for manufacturing to pick up in the second half of this year and for the momentum to continue through next year.

The start of 2020 has brought some favorable outlooks for most metals. After 2019, a year in which most nonferrous and ferrous prices dropped between 25% and 40%, prices seem to have bottomed out. Prime aluminum did drop 2.5 cents from the beginning of December to January 2. However, prime scrap demand picked up and actually is up slightly on segregated alloys. It held steady on the other alloys. The inflow of secondary aluminum scrap fell off at the end of 2019 because of lower steel prices reducing the volume of cars being scrapped. For the first time in a year, aero chips rose 1 cent. That may seem small, but at least it is better than the previous continuous price reductions. Boeing’s announced cutbacks on the Max 737 will hurt many of our customers and decrease the amount of scrap on the market. Copper prices are up about 10% this month. Although nickel prices are flat, 304 stainless prices rose from 38 to 45 cents this month. Steel prices also rose $30 per ton for the third month in a row. HRC has also spiked to over $600 per ton.

Happy New Year.

“The most important ingredient in the formula of success is the knack of getting along with people.”  Teddy Roosevelt

Work safe. Work smart. Profits will follow.