Shapiro Metals Market Insights – September 2020

This acronym certainly sums up the year better than seen. We all continue to deal with “VUCA” issues and are constantly adjusting and adapting our business models. The recovery is still dependent on Covid-19 infection rates, a vaccine, and fiscal policy. New Covid-19 cases have decreased but are still over 40,000 per day. With schools back in session — some in class and many online — and Labor Day weekend socializing, cases will probably continue to go up, at least in the short term. Covid-19 deaths are now over 190,000 nationally but are fortunately not growing as fast as they were in the early days of the pandemic. One factor is that we have been learning to treat cases better. Vaccine testing continues, but we are still months away from a solution. Meantime, fiscal policy shows little sign of a resolution. It is all VUCA.

Pent-up demand and the extra $600-per-week checks to the unemployed have been good for the economy. 1.4 million new jobs were created in August vs 1.8 million in July. The unemployment rate dropped to 8.4%, but that still leaves over 10 million people looking for work and about 30 million collecting unemployment. There are still 11.5 million fewer jobs now than there were in February.

Despite this, August mainly brought better news for the economy. Nondefense capital goods new orders excluding aircraft, which are a proxy for business investment, were up 1.9% in July [latest data available]. New orders for durable goods excluding aircraft were up 2.4% for the core goods in July. Total industrial production was up again and now is 4% below pre-pandemic levels. Car sales have been very strong. I was surprised to read that the top three selling brands are luxury model manufacturers: Tesla, Lexus, and BMW. Also, higher-end trucks and SUV models are selling well and at premium prices due to low inventories. Used cars are also in short supply. All of this is great news for the auto industry. New home sales are the highest since 2006 due to short supply, more people working from home, and low interest rates.

The ISM PMI for August was strong at 56.4, up from 54.2. More importantly for manufacturing is that new orders showed their fastest growth since January 2004, with a reading of 67.6. The PMI sub-indices of metals related to manufacturing were also strong. The NFIB optimism index was up in August and slightly above its historical average. Even with all this good news, the Conference Board consumer confidence level dropped to its lowest level since 2010. Fed Chairman Jerome Powell recently announced a landmark decision to ease the inflation target based on the “reality of a quite difficult macroeconomic context of low interest rates, low inflation, relatively low productivity, slow growth, and those kind of things. We’ve really got to work to find every scrap [my favorite word] of leverage in helping stabilize the economy.”

Even with all that good news, the Shapiro Nonferrous Scrap Activity Index was virtually the same as July.

China Caixin was up in August in its fastest expansion since January 2011. Exports rose above 50 for the first time since the pandemic. Coronavirus-related production of medical supplies and protective health equipment helped China’s exports. China is experiencing a V-shaped recovery and is the only major country that will see economic growth this year of between 1.5% and 2%. Germany also experienced its strongest August recovery in two years while the rest of Europe is also doing better. The US has a forecasted decrease of about 5%.

Metal prices continued their strong five-month recovery, with all nonferrous prices reaching 2020 highs. Prime aluminum prices are up 30% from May. The LME increase is partially due to weakness in the dollar. Very low interest rates are pushing financial buyers toward aluminum futures; they can make more money through a complex process of buying aluminum futures, financing, warehousing, and holding the aluminum. Prime prices are also up because of the 7-cent increase in the Midwest premium from the Section 232 tariff. Prime scrap aluminum prices rose 25% and are at their highest point in 11 months. Secondary aero chips are the highest in over 15 months, rising with the auto industry’s gains and foreign demand.

Copper prices have risen to their highest levels in 30 months. Nickel and stainless prices are likewise making new highs. Steel prices are stronger but below yearly highs. US steel production is rebounding but still far below pre- pandemic levels. Chinese iron ore prices hit a six-year peak, and HRC rose to over $500 per ton in August.

For those of you who are wondering what to do with your buying or selling decisions, I can offer you some insightful phrases I have heard during my 50 years in the business: “The trend is your friend.” “Pigs get fat and hogs get slaughtered.” “95% of people that speculate on the futures market lose.”

Shapiro believes in matching our purchases with our sales. If I want to gamble, I can go to Vegas — and I don’t like Vegas odds.

“Better to remain silent and be thought a fool than to speak out and remove all doubt.” -Abraham Lincoln Be well. Be safe. Life is good. Family is precious.