Bruce's Commentaries / 01.18.2021

Shapiro Metals – January Market Insights 2021

Shapiro Metals – January Market Insights 2021 - Image

Market Insights January 14, 2021

Happy New Year!!

Everyone is happy to see the end of 2020. It was a most unusual year. Before the pandemic hit the US, we were watching the Donald Trump impeachment. The Iowa presidential primaries took place, which were quickly and painfully followed by too many more primaries. And then there was the COVID-19 outbreak that has dominated and devastated far too many families; there are still 10 million people out of work. All of our lives have been severely disrupted in too many ways. Fortunately, the vaccine was developed at record speed and we look forward to the vaccinations leading to a return to more normal and healthier times. The elections are finally over and hopefully, as business people, we will get back to a stable strategy and policies that will be beneficial.

The only bad numbers I continue to see are the rise in COVID-19 cases and deaths. We have spiked to over 300,000 new cases daily and the deaths are approaching 400,000 people. That is more deaths than we sustained in WWII. Far too many people are suffering, some because they don’t wear masks and are involved in risky behavior and others because the virus can unwittingly find its way into your system. We hope that the year-end holiday transmissions will peak in January and start declining and that vaccine distribution accelerates. 

The ISM manufacturing index rose 3.2 points to 60.7, expanding in December at the fastest pace in over two years. A pickup in new orders and production supported the expansion. The production sub-component rose to 64.8, the highest level since 2011, as factories continued to replenish lean inventories and meet growing demand. The new orders gauge of 67.9 matched the strongest reading since January 2004. New orders and production are two of the best lead indicators for us. “Manufacturing has done well,” said Timothy Fiore of ISM on a call with reporters. “And Q1 looks good, but we are being impacted by the labor side simply because the quantity of infections and the quantity of people who are having to self-quarantine or be sick is just so overwhelming that everybody has to be affected by it.” 

Nondefense capital goods new orders excluding aircraft, a key indicator for business investment, rose an adjusted 1.3% in November, the latest month for which data is available, and it is 4.75% over the start of the year. New home sales were down 11% in November, month over month, but they are still up 8.7% from the pre-pandemic high and are at the best annual selling rate since 2006. Unemployment rose slightly because of pain in the travel and leisure industries. Car sales also dropped somewhat but continue to catch up with demand. The Shapiro Nonferrous Scrap Activity Index for December was down slightly from November but still about the same as pre-pandemic volumes. The main industries we buy from are auto, aero, HVAC, trailers, RV, medical devices, ship builders, and food service equipment manufacturers. Considering the unusual year we had, we are pleased with our results.

Looking at GDP, the consumers are in strong shape with increased savings and pent-up demand. The stock market continues to set records. With the new government stimulus plan and the potential for infrastructure spending, this economy looks like it will be strong for manufacturing most of the year, if we can get through the year without widespread shutdowns.  

One of the big drivers for metal prices is the V-shaped Chinese recovery, which continues, although the Caixin dropped slightly in December. European manufacturing was stronger in December. The International Monetary Fund is forecasting 8.2% growth for China in 2021, 5.2% for Europe, and 3.1% for the US. China was the only major country to experience growth last year. The US and Europe were down over 4%. Another driver has been the weakness of the dollar, which has been driving strong prime metal prices since April.

Meanwhile, scrap prices are on a rocket. Demand is strong here and abroad, but supplies have not caught up with the demand. Therefore, most spreads continue to be tighter compared to prime prices. For aluminum, spot prime is only a few cents higher than secondary 380, a very unusual condition. This has also been pushing scrap aluminum prices. Compared to the April lows, prime aluminum prices are up about 60%, while some secondary prices, like aero turnings, are up close to double. Copper prices are also up over 70% and stainless steel prices are up over 75%. The steel mills are approaching their target of 80% capacity and growing. The Chinese appetite for steel is still very strong and the domestic scrap steel prices are at an 8-year high!!! I am still very much aware of the old adage: Don’t get too cocky in the good times and don’t get too depressed in the bad times. Things will change.

Edward Meir from ED&F Man is recognized as one of the most accurate forecasters in the country for metals commodities. His 2020 average aluminum price forecast was less than 3% off, copper was less than 2% off, and nickel was almost dead on. That is incredible in an insane year. Even his highs and lows were close. For 2021, his yearly price average on the LME for aluminum is $1,880, copper is $7,330, and nickel is $17,100. Other forecasters I follow on aluminum predict a low of $1,878 and a high of $2,080 for the 2021 yearly average. I do subscribe to Edward Meir’s daily reports and monthly forecasts. If you want to look into this you can contact him at emeir@edfmancapital.com.  

“We cannot become what we need to be by remaining the same.”  -Max Depree   

Life is good. Family and health are precious.

 

Bruce Shapiro