CONSUMER BUYING PRICES

In June of 2025, the United States and Isreal bombed Iran with the intention of “obliterating” Iran’s nuclear capability. The bombing did not obliterate their nuclear power but did slow them down. Iran’s military response to the attack did very little to the U.S. or Israel.

Iran’s leadership realized the failure of the June response. Iran’s Supreme Leader Ali Khamenei and his military commanders changed their strategy which included the potential death of their leadership. On February 28, the U.S. and Israel launched a surprise day light attack on Iran. Iranian Supreme Leader Ali Khamenei and most of his top leadership were killed instantly in three separate attacks.

What comes to mind is Mike Tyson’s quote:

Instead of a centralized controlled chain of command, Iran implemented a so-called mosaic decentralized approach that allows individual commanders all over the country to provide the autonomy to keep up the fight if cut off from their superiors. We are witnessing this now with drone attacks on many of its neighbors.

The drone attacks are similar to guerrilla warfare. The cost of Iran’s drones, which have been used by the Russians against the Ukraine, costs about $35,000. The defense that Israel and its Mideast neighbors use to protect themselves, costs about a million dollars for each drone or missile attack. No one knows how many more drones, which have a limited range, as opposed to long range missiles Iran has left or how the U.S. plan is to curtail those attacks.

Iran has lost almost all of its Air Force and Navy. Its missile sites have been severely damaged. Inflation is wreaking havoc on the economy. The Iranian protests in January were met by approximately 10,000 to 30,000 protestors being arrested and killed. While the Iranian regime only has support of 20% of the population, Iran’s Revolutionary Guard remains in control. They are well armed, trained, organized, and there’s 960,000 of them.

Despite this, Iran has been able to disrupt the production and shipment of oil from the Mideast. This has been accomplished through drone and missile attacks on every country in the Gulf. There have been strikes on luxury hotels, energy facilities in multiple countries, key ports, U.S. embassies across the region, and even Amazon data centers.

According to the latest Statistical Review of World Energy, about 20% of all liquefied natural gas (LNG) exports in 2024 came from Qatar, mostly going to East Asia. About a third of all crude oil exported in 2024 came from Iraq, Kuwait, Saudi Arabia, and the United Arab Emirates (UAE). Similarly, about 18% of global exports of refined petroleum products also came from those four countries.

Currently, much of this energy production in the area has been shut down because it cannot be shipped safely through the Strait of Hormuz, and there is not enough storage to hold it. The price of oil, gas, and diesel fuel used for transportation of people and products has exploded.

This is also impacting the price and supply of fertilizer which is made from natural gas. As we enter spring, this is critical for the world’s food supply. Crude oil and natural gas are both inputs for manufacturing chemicals and plastics, which in turn are used as inputs for everything from pharmaceuticals to semiconductors.

The threat of oil going to $150 a barrel would have a devastating impact on the worldwide economy and inflation. How long will this continue? How many lives will be lost? Will there be regime change in Iran? Will Iran be broken up and cause worse problems? What will happen to the enriched Uranium Iran has produced? We can only hope that things work out.

What is the reality of high oil prices? The U.S. is far less dependent on oil now than ever.

• The U.S. consumed 4% less gasoline in 2025 than in 2007

• GDP, gross domestic product, the measure of goods and services adjusted for inflation, has risen 42% during the same time period

• The share of households’ consumption of energy, including electricity, natural gas and gasoline, fell from 5.7% in 2007 to 3.7% last year.

While these are the facts, the psychological impact of higher gas prices on consumers is significantly greater.

The U.S. is the world’s largest producer of oil and is about 20% of the world's production. We are also a net exporter of petroleum and major exporter of liquefied natural gas. That means the hit to consumers is offset by a boost to producers.

The Iran War will continue to beVUCA - VOLATILITY, UNCERTAINTAY, COMPLEXITY AND AMBIGUITY on steroids.

INFLATION

Relatively calm for now

• The Consumer Price Index (CPI) for February changed very little from last month and last year. Headline CPI for month over month was up 0.3% and core CPI was up 0.2%. For year over year, headline was up 2.4% and core was up 2.5%.

• Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure for December, is the latest data out. Core prices, which strip out the volatile food and energy categories, rose 0.4% in December with the year-ago comparison moving up to 3.0%, matching the increase for the twelve-months ending in December 2024. Surprisingly, the tariff-sensitive goods category was not the primary driver of inflation in 2025, rising just 1.7% over the past year. Instead, it was services that led the way, increasing 3.4% over the same period. This is not good news for the Fed’s 2% inflation goal.

• The Producer Price Index for January Core producer prices which excludes those typically volatile categories of food and energy rose 0.8% following the 0.7% in December, the second largest months increase since mid-2022. The biggest factor again in January was the machinery and equipment wholesale margins that were up 14.4%. Who knew? Goods prices were actually down 0.3% in January.

MANUFACTURING

The resilient economic beast that is the U.S. keeps getting stronger

Liberation Day for manufactures arrived on February 20 with the U.S. Supreme Court striking down Trump’s tariffs.

By a six to three margin, the Supreme Court determined that Trump’s country-specific tariffs exceeded presidential authority. Trump then announced new tariffs of 15% using a separate part of a trade law. The Supreme Court ruling reduces most of the uncertainty surrounding his previous tariffs and sets the stage for more economic growth. This is great news for all of us.

The Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) fell slightly to 52.4 from 52.8. While it has been in contraction nearly three years, excluding January and February 2025, this is now the second straight month in a row it is in expansion.

There is other good news.

• New orders and production retraced from January’s rapid pace but remain in solid expansion territory at 55.8 and 53.5, respectively. Notably, outside of January, this is the highest new orders reading in nearly four years. Even though new order books were already weak heading into last year, manufacturers had to rely on their order backlogs.

• The order backlog index was in contraction territory for thirty-nine consecutive months before moving into expansion territory last month. The pace accelerated in February, with the index rising to 56.6. This is the highest level since May of 2023.

• The employment index rose to 48.8 in February, the highest level in a year, but remains below 50, signaling contraction, now for the 29th consecutive month.  

• The pricing index jumped to 70.5 in February from 59.0 in January. This was also reflected in the increases in the Producer Price Index.

Last month I asked, “Will the January uptrend continue to surprise?” I am not surprised, but this may change next month with the war in Iran.

• December core industrial manufacturing, which excludes volatile autos, rose 0.5% in January. Production in high-tech equipment, which has been a reliable tailwind recently due to investment in AI as well as the reshoring of semiconductor production, increased 1.9% in January. High-tech manufacturing is up a strong 8.9% in the past year and has typically posted the fastest 12-month growth rate of any category. In addition, the manufacturing of business equipment overtook high tech manufacturing in January, up 9.4% in the past year. This appears to be signaling reindustrialization in the U.S. outside of just the high-tech industry.

• U.S. industrial production rose 0.7% in January, the most in nearly a year, fueled by a broad increase in manufacturing and another healthy advance in utility output.

• U.S. non-defense capital goods new orders, excluding aircraft, rose 0.9%

• in December and finished the year with the ninth consecutive monthly gain.

• Shipments of core non-defense capital goods excluding aircraft, an essential input for business investment in calculating GDP and a leading manufacturer indicator, rose 0.9% in December and were up at an 8.2% annualized rate in Q4 versus the Q3 average. 

• The National Federation of Independent Business fell slightly in February to 98.8 but remained above its 52-year average of 98.

• GDP slipped to 1.4% in Q4 from 4.4% in Q3 due to the government shutdown. For the year, it grew 2.2% versus 2.3% for 2024.

• Car and light truck sales in February 2026 reached a seasonally adjusted annual rate (SAAR) of 15.8 million units, representing a 1.4% decline year-over-year. Total sales volume rebounded from a poor weather January decline, and was approximately 1.197 million units, which was down 1.5% from February 2025.

•  Construction spending rose 0.3% in December, as increases in homebuilding and power projects fully offset declines across most other categories.

• The average rate for a 30-year fixed mortgage was 5.98% this week, the lowest level since September 2022.

• The Shapiro Nonferrous Scrap Activity Index tracks our daily purchases from duplicate accounts across our nine locations and a diverse industrial base. Based on our twelve-month trailing average, volumes for February recovered from down 10% the previous two months to just down 2%.

CHINA

China sets its growth rate below 5%

There are two Chinas. The first is the economic manufacturing dynamo, and the second is the sluggish domestic economy.

China’s manufacturing sector is by far the biggest in the world, producing about a third of all global goods, more than the United States, Germany, Japan and South Korea combined. It is also surging in AI and robots while still trailing the U.S. in semiconductors. China also produces twice as much electric than the United States.

However, there is over capacity of state-owned manufacturing companies that should be bankrupt. The profit margins of these manufacturers hovered around 4.5% last year, less than half the levels seen in the U.S. The deluge of goods is pulling prices and wages downward, fueling a deflationary spiral that is starting to hit the nation’s finances.

The domestic economy continues to suffer from the consequences of a still deflating property bubble that has never been addressed. Consumers have most of their savings invested in property. Up until 5 years ago, that was working quite well. Now it is a severe problem. As a result, consumers have yet to open their wallets. Also, with slowing growth and youth unemployment surging to nearly 20 percent (and has backed off only slightly), investment has fallen. This has resulted in deflationary pressure.

President Xi continues to ignore the domestic issues and instead focuses on expanding exports. As discussed before, this has met with resistance from its trading partners.

For the first time in decades, China set its growth rate to 4.5% to 5%. This does not sound like a big deal, but it is a signal that “things are not coming up roses” in China. Secondly, not many analysts actually believed that China was growing at 5% for some time with all of their housing problems, banking issues, declining population and zombie manufacturing companies.

The official PMI dropped to 49.0 in February, a 4-month low. We’ll have to keep watching and see how things change.

METALS

Metal tariffs are here to stay

The Section 232 tariffs were not affected by the Supreme Court ruling, and Peter Trpkovski, CFO for Century Aluminum stated on February 24, “The U.S. 50% tariffs on steel and aluminum will remain in place for the foreseeable future.”

The U.S. and Israel attacked Iran on February 28. Iran followed through with attacks on the U.S., Israel and surprisingly it’s Gulf State neighbors. These Iranian attacks have shut down most oil production and shipments through the Strait of Hormuz including aluminum shipments.

The Gulf States produce about 10% of the world’s aluminum. Since the start of the war, prime aluminum has gone from $2.47 including the Midwest premium of $1.04 to $2.67 as of March 11, with the premium going over $1.10. The prices are continuing to climb. Edward Meir forecasts LME could go to $3700 this month. As the LME climbs, so will the Midwest premium. These prices are making it very difficult for aluminum manufacturers.

From the middle of 2024 to the middle of 2025, the spread on scrap versus prime kept getting tighter. Once Trump raised the aluminum tariffs to 50% in June last year, the spreads on scrap versus prime have been the greatest they have ever been. Now with the Iran war and the loss of most of the Gulf prime aluminum, the spreads are getting even wider.

My logic thinks that with a prime shortage, there would be a greater demand for scrap and higher prices. Wrong! Most prime consumers have maxed out their scrap aluminum consumption after locking in wide margins at the end of last year. As Greg Wittbecker points out, there are also chemistry limitations that metallurgists have placed on the percentage of scrap that would also need to be raised. In addition, the U.S. high premiums are also attracting scrap worldwide.

With spot prime up $.09 from last month and PMTA flat, prime scrap prices were also just about flat. Secondary scrap aluminum prices rose a few cents while copper was up 2%. Stainless steel was also up slightly while steel prices did not change.

CLOSING

An old Chinese proverb says, “You should live in interesting times.” This is also meant to be a curse.

The Iran regime’s goal since it came to power 47 years ago has been “Death to Americans” They have exported their terror strategy throughout the world and are close to having a nuclear weapon.

Even though their country is being devastated, they continue to have economic leverage. We will see what happens.

"When you ain't got nothing, you got nothing to lose.” Bob Dylan