Scrap price benchmarks. Chicago shredded as published by AMM dropped $30 this week. For the last 15 months Platts have published a breakout into domestic and export prices, (Fig 1). The export price is currently $50 below domestic. The relationship between the shredded price and the Brent blend crude oil was exactly in line with the historic trend in the first week of February, suggesting no scrap price driver in either direction, (Fig 2). Iron ore moved in the opposite direction from scrap in early February rising $5 / metric ton from early January, (Fig 3). However the small spread between scrap and ore suggests that the domestic price of scrap is in line with the global steel market.

Fig 1

Import licenses US and Canada, January. US licensed tonnage in January was 67% higher than the preliminary figure for December and 37% above January last year. The greatest tonnage increase in December > January was rebar up 113,000 tons, (Table 1). Turkish licenses for rebar totaled 123,814 tons in January, a huge increase from December’s volume of 45,643 tons. There has been a slow down in the Eastern Mediterranean market which probably contributed to the Turkish volume. Beams increased 22,000 tons to 30,546 tons. Spain accounted for more than half of the beam tonnage and most of the increase. Total Canadian permitted tonnage declined 25% in January from the December volume. Off shore volume was down by 62% which raised the US share from 57% in December to 78.3% in January. Total rebar was down 62% and wire rod 89%, (Table 2). Off shore rebar declined to almost nothing and off shore wire rod was down 93%. Off shore beams almost doubled, up 87% to 24,240 tons. US share of Canadian beams fell from 79.5% in December to 67.1% in January.

Table 1

Commercial real-estate construction, absorption and vacancies by region. Almost 51 million sq ft of apartment space was absorbed with only 9 million of completions in Q4 2011. Apartment vacancies are plunging and are now the lowest in 10 years. This must result in a building boom very soon, (Fig 4). Other property types are lack-luster but even retail is now experiencing a small vacancy rate decline. Absorption of office space is now over twice the completion rate which is driving the national vacancy rate down. This is not the case for the North East and Mid West where office vacancies are still increasing, (Table 3).

Fig 4

Bank lending standards. Q1 2012. The Federal Reserve Senior Loan Officer Survey indicates that there has been a separation of supply and demand for both commercial and industrial loans, (C&I), and commercial real-estate loans, (CRE), in the last three months. Demand for loans has increased substantially but lending standards have not eased. Demand for C&I loans is being driven by inventory and customer account receivable needs. A net 33.9% of banks reported increased demand for CRE loans as only a net 1.8% of banks reported an easing of lending standards, (Fig 5). There has been a small improvement in both supply and demand of prime residential mortgages but demand for home equity lines of credit declined substantially. Demand for credit card loans increased slightly. This report suggests that business sentiment is improving and consumers are continuing to move away from real-estate backed loans.

Fig 5

Total construction and cement consumption. The Commerce Department report of construction put in place for December showed total construction to be down 4.6% in Q4 year on year with positive momentum. Private construction was down 0.7% and should move into positive territory within the next couple of months. The decline of state and local work slowed to 11.8% year on year, (Table 4). Total infrastructure spending was down 6.4%. The decline of non residential building which is the largest segment slowed to 3.8%. Non residential starts reported by McGraw Hill / Dodge had positive growth of 13% in Q4 y on y. Cement consumption bottomed out two years ago in Q1 2010. The cyclical peak in the 3 months through October 2011 was 5% higher than the same three months a year ago, (Fig 6).

Table 4

Steel Demand Indicators; Table 5 is a snapshot of the market situation on 02/09/12. In most cases values are three month moving averages. The “Present” section is more red than green, particularly for construction indicating weak fundamentals by historical standards, the latest month or quarter for which data is included is identified in the 2nd column. Green in the “Change” column indicates movement in the right direction and vice versa. Indicators updated since last week are shaded beige. (Explanation of Indicators).

Table 5

United States GDP in 2011, based on the 1st estimate for the 4th quarter totaled $13.422 trillion, (in chained 2005 $s), an increase of 1.56% from calendar 2010 which had increased 3.14% from 2009. On a quarterly basis, Q4 grew 2.8% form Q3. By far the biggest contributor was an increase in inventories, which in Q3 contributed a negative 1.35% and in Q4 a positive 1.94%, (Fig 1). Increasing inventories make a positive contribution to GDP. There will be a drawdown of inventories over the next few quarters, which will be a drag on future GDP numbers. Personal consumption accounted for 70.67% of total GDP in Q4, (Fig 2), durable goods which were 14% of personal consumption grew 6.5% year on year. This week the Federal Reserve downgraded its outlook for economic growth in 2012, the Fed expects the economy to grow between 2.2% and 2.7% this year. That's down from November's forecast of between 2.5% and 2.9%. A growth of about 2.8% in GDP is necessary to get any long term growth in steel consumption however steel will perform above trend in 2012 as the recovery from 2009 continues.

Fig 1

Industrial construction and commodity prices. Industrial construction project expenditures totaled $123.6 Billion in 2011, non residential which we define a buildings under roof, totaled $110 Billion. This is a reversal of past history when typically non residential was about 50% > than industrial. The growth of industrial slowed in the three months through January but on a rolling 12 month basis year on year growth is still a healthy 35.1%, (Fig 3). There is a loose relationship between industrial construction and commodity prices as measured by the Commodity Research Bureau index, (Fig 4). Commodity prices have been declining since May 2011 but are still well above the long term trend. Caterpillar’s 4th Q earnings are indicative of the commodity market. Their strong 2011 sales were driven by the rising demand for commodities and construction equipment in both the developed and developing countries. Caterpillar blew past market estimates, reporting Q4 net income of $1.5 billion, up 60% from the year-ago period as revenue jumped 35 percent to an all-time high of $17.2 billion.

Fig 3

Regional job creation Q4 2011. The states compile their employment figures independently of the federal government. In 2011 as a whole the Fed reported a total national job creation of 1,640,000. The individual state reports add up to 1,709,800 which is an encouraging confirmation. The East North Central region, (Illinois, Indiana, Michigan, Ohio and Wisconsin), created the most jobs in 2011 based on a very strong first half which tanked in the second half, (Table 1). The Pacific, (California, Oregon, and Washington), and South Central, (Arkansas, Louisiana, Oklahoma and Texas), regions were close behind, both creating over 300,000 jobs in 2011. The proportion of jobs created by quarter was Q1 41.9%, Q2 28.9%, Q3 10.1%, Q4 19.1% an indication that the economy slowed in Q3 but partially recovered in Q4.

Table 1

Impression die forgings competitive comparison. In ten years since January 2002, the producer price index, (PPI) of impression die forgings has increased by 44.2% and the PPI of carbon steel castings by 61.4%. In the last three years castings have continued to move ahead of forgings, (Fig 5). The Bureau of Labor Statistics does not report a PPI for aluminum forgings or castings. The next best thing is the PPI of aluminum mill shapes. In the same ten year period, forgings have lost ground against aluminum which has escalated by only 26.5%. As far as we can tell based on our own selling prices, the BLS PPI data is an accurate representation of the real world. The PPI of aluminum mill shapes also tracks well with the LME aluminum price quoted in $ / lb. (Note PPI indexes are based on 1982 = 100, they measure change since that time not the actual dollar value.)

Fig 5

The relocation of auto production to Mexico has accelerated since the recession according to data produced by Wards Automotive. In the last three years Mexico’s share of NAFTA auto production has increased from 19.3% to 28.2%, (Fig 6). Total auto production in NAFTA is 3% below the Q4 2007 level but the US is down 10.8% and Canada down 22% in this period as Mexico has increased by 41.8%, (Table 2). The head of the Mexican Industry and Trade department was quoted by AMM on Tuesday as saying that light vehicle assemblies in Mexico would grow by another 76% by 2014. Production of medium and heavy trucks has also moved south of the border in a big way since 2007. Canada is now virtually out of that sector, down by 64.6% as Mexico has increased by 67.3%. US share of medium and heavy trucks has declined from 66.8% to 63.4% since Q4 2007. Canada has declined from 9.2% to 2.7%.

Fig 6

Global GDP growth forecast. On Tuesday this week the IMF reduced their forecast for Global GDP growth through 2013 by 0.7% for this year and 0.6% for next year, (Fig 1). 2012 growth is now forecast to be 3.3%. A growth of 2.8% is necessary to get any growth in steel consumption. Christine Lagarde, Managing Director of the IMF reported on Monday, “the economic outlook that the IMF will release tomorrow, we will lower growth forecasts for most parts of the world. Even these lower forecasts assume a constructive policy path that is by no means assured. In too many places, uncertainty is holding back demand and the willingness to lend. A legacy of high public and private debt is hurting economic prospects. The global financial system remains fragile. In an interconnected world like ours, these forces are feeding each other across borders. Capital flows to emerging markets have already dropped off, and growth is expected to slow even in the most vibrant parts of the world economy. Low-income countries are especially vulnerable.”

Fig 1

Global crude steel production in 2011 grew by 6.8% to a new record of 1.53 billion tonnes. Growth has been slowing since July when the annual rate of production was 1.56 billion tonnes, (Fig 2). Capacity utilization is much lower today than it was in July 2008 because 236 million tons of capacity has been added since that time. US production grew by 7.1% in 2011 to 86.2 million tonnes. Chinese production grew by 8.9% to 695.5 million tonnes. China’s production accounted for 46.7% of total global production in 2011.

Fig 2

Market size, long products through December. In three years since December 2008 long product supply has had a compound annual growth rate of 12.7%, (Fig 3). Growth slowed to 6.7% in 2011 compared to 2010. The products with the best performance in 2011 were light shapes, up 22.4% and beams up 11.8%. Wire rod supply picked up a strong 15.6% in Q4 compared to the same period in 2010, (Table 1). Import market share has been in steady decline for almost two years and in December was 10.5%. The import trend will likely reverse if the US$ continues to strengthen and steel demand in Europe continues to decline.

Fig 3

Scrap exports in November totaled 1.94 million tonnes for a total of 24.64 million tonnes in 12 months through November. This is an increase of 21.3% year on year, (Fig 4). 2012 may be off to a slow start. AMM reported on January 18th that overseas buyers were on hold waiting to see if prices would soften. Turkish scrap purchases were steady for three months through November but their largest rebar export markets, UAE and Egypt, are exhibiting a lack of demand. SBB quotes an exporter at a Turkish mill saying, "Up until January we were doing a lot of business with Egypt: now there is very little demand because of lack of political stability." Lack of Middle Eastern demand is probably a significant factor in the surge of Turkish rebar import licenses to the US in January. Among the major steelmaking countries, Turkey had the greatest growth in production in 2011 at 17%.

Fig 4

Indicators we should have been watching. Of all the economic data streams that go into the production of this Steel Market Update, there are two that signaled the onset of recession long before reality struck. Single family housing of course was one but the point is that housing was heading south two years before the recession began in Q1 2008 and should have been of increasing concern through 2006 and 2007, (Fig 5). The other is the production of medium and heavy trucks which have signaled the last three recessions at least a year in advance with one false alarm in 1996 when a recession was narrowly avoided, (Fig 6). Many economic observers are forecasting a recession in 2012, not the least of which is the ECRI. The good news is that truck production is not slowing and housing starts seem to be past their bottom.

Fig 5

Non residential construction starts surged 23.8% in December year on year as reported by McGraw Hill / Dodge. In the 4th quarter starts were up by 13% YonY, (Table 1). Apartments > 4 stories were the largest gainer but excluding apartments all other projects were up by 5.6% YonY. Clearly there is now upward momentum in non residential which on a rolling 12 month basis has been developing for over a year, (Fig 1). Still a long way to go but the 4th Q data is encouraging. There are opportunities for structural steel in the multi storey residential sector as reported by Jacinda Collins of the AISC. “One of the most exciting structural steel stories for 2011 comes out of New York City where developers of multi-story residential projects are beginning to embrace the use of structural steel for their new projects. One example is 920 Westchester, the first Girder-Slab apartment complex in the Bronx. The 110-unit structure also will house retail, community space, and an underground parking garage.”

Table 1

Automotive production, sales and SBQ demand. In Q4 2011, total NAFTA light vehicle production was up by 14.5% YonY, reaching 13,011,000 units for the year as a whole, (Fig 2). Medium and heavy trucks were up by 46.1% in Q4 YonY and closed 2011 out at 332,000 units. Prior to the crash of 2008 there was a good correlation between NAFTA light vehicle production and SBQ supply which is domestic shipments plus imports. That is no longer the case which suggests that SBQ demand has strong upward potential as overall industrial production continues to recover, (Fig 3). US Light vehicle sales in 2011 totaled 12.75 million units. In Q4 LV sales were up by 9.2% YonY, autos were up by 10.1% and light trucks by 8.5%. Inventory to sales ratio declined to 2.0 which is on the low side of its 30 year range.

Fig 2

Service center intake, shipments and inventories. US service center intake increased by 1.6% on a tpd basis in December driven by sheet and plate. Long product intake declined. Shipments were seasonally down for all products with a total of negative 14.6%. 2011 shipments were 30% below the pre-crash norm, (Fig 4). Overall months on hand increased from 2.44 to 2.8, (Table 2). Total Canadian carbon steel intake shot up by 56.6% driven primarily by flat rolled that was up by 99.2%. This was due to very low November intake, December was back on trend. Shipments overall were seasonally down by 17.4% with structurals having the best performance, down by 8.7%. Total products months on hand shot up from 2.5 to 3.6 confirming what is always a December spike. Flat rolled had the highest inventory ratio at 4.03, (Table 3)

Fig 4

Federal Reserve Beige Book; “Reports from the twelve Federal Reserve Districts suggest that national economic activity expanded at a modest to moderate pace during the reporting period of late November through the end of December. Consumer spending picked up in most Districts. Manufacturing activity expanded in most Districts, the strongest reports came from subsectors such as heavy equipment manufacturing and steel, for which demand has been boosted by robust growth in the energy, agricultural, and auto manufacturing sectors. Activity in residential real estate markets largely held steady at very low levels, with the exception of further increases in the construction of multifamily residences. Demand for nonresidential real estate remained somewhat soft overall but improved in a number of Districts.”

Steel Demand Indicators; Table 4 is a snapshot of the market situation on 01/19/12. In most cases values are three month moving averages. The “Present” section is more red than green, particularly for construction indicating weak fundamentals by historical standards, the latest month or quarter for which data is included is identified in the 2nd column. Green in the “Change” column indicates movement in the right direction and vice versa. Indicators updated since last week are shaded beige. (Explanation of Indicators).

Table 4

The Euro and European bond yields. The Euro opened 2012 below 1.30 US dollars and is down by 12.7% since the recent peak of 1.4843 on May 5th, (Fig 1). The creation of the euro in 1999 had unintended consequences. Cheap credit fuelled real-estate and consumer spending booms and debt grew quickly. Trade imbalances grew between Germany in particular and the South. The countries of the periphery (as well as France) now have to regain competitiveness by lowering their unit-labor costs and introducing more flexibility into the labor markets. Prior to the Euro such imbalances could be addressed by individual nation currency devaluation; this is no longer an option. Interest rates on peripheral country 10 year government bonds responded violently in 2011, (Fig 2), making a solution even more difficult. The situation in Europe will influence global steel demand / price and the trade volume of raw material and rolled products around the world. As 2012 unfolds, this is a critical issue for the health of the North American steel industry.

Fig 1

US steel production, full year 2011 and benchmark evaluation. The preliminary raw steel total production volume reported by AISI for 2011 was 97,057,000 tons. This was an increase of 16.47 million tons or 20.4% from 2010. To evaluate whether this is too much, too little or about right, it is useful to compare with a benchmark. What works for steel production is new unemployment claims which has better than a 90% correlation since 2000. For much of 2011 it looked as though too much steel was being produced but since early November the volume has been exactly right, (Fig 3).

Fig 3

ISM manufacturing index and durable goods orders. The Institute of Supply Management manufacturing index improved in December to 53.9, a level > 50 indicates expansion, (Fig 4). The difference between new orders and inventories, which is indicative of future production, widened from 8.4 to 10.5 in December, the best since March. This bodes well for factory output in Q1 2012. New orders for manufactured durable goods in November increased $7.5 billion or 3.8 percent to $207.0 billion, up four of the last five months, (Fig 5). Shipments, down two of the last three months, decreased $0.8 billion or 0.4 percent to $202.8 billion. Unfilled orders up nineteen of the last twenty months increased $11.1 billion, or 1.3 percent, to $898.1 billion. Inventories up twenty three consecutive months, increased $2.0 billion or 0.6 percent to $368.8 billion.

Fig 4

State tax revenues. Total state tax revenues on a rolling 12 months basis through Q3 2011 had recovered to 97.8% of their peak in Q3 2008, (Fig 6). Most of the shortfall is in individual income taxes which through Q3 2011 were 5% below their peak. State revenues are one side of the equation, entitlement obligations have to be addressed before state funded construction can recover. Tax revenue sources by state are available at http://www.census.gov/govs/qtax/

Fig 6

Global scrap trade totaled just over 24 million tonnes in Q3 2011 and has been on a rising trend since the crash of Q4 2008, (Fig 7). The US share of the total global market set another all time high in Q3 of 27.8%. On the buy side, Turkey also set a record in Q3 with 20.7% of total global trade. The US was the major source of Turkish scrap, supplanting the EU in both Q2 and Q3, (Fig 8). China’s total scrap imports have had no upward trend since 2001.

Fig 7

Steel Demand Indicators; Table 1 is a snapshot of the market situation on 01/05/12. In most cases values are three month moving averages. The “Present” section is more red than green, particularly for construction indicating weak fundamentals by historical standards, the latest month or quarter for which data is included is identified in the 2nd column. Green in the “Change” column indicates movement in the right direction and vice versa. Indicators updated since last week are shaded beige. (Explanation of Indicators).

Table 1

GDP Q3 2011 3rd estimate. Revisions from the first estimate of 2.5% annualized growth in Q3 have been to 2.0% and now to 1.8%, (Fig 1). Final sales of domestic product, which is the change in output minus the change in inventories and measures demand for U.S.-produced goods and services, were revised down, but remained strong at 3.2%, the second largest gain in four years. However at the present rate of job creation it will be 2016 before the previous employment peak is reached. Quote from John Mauldin, “What we just experienced was not a normal business-cycle recession, but a deleveraging - balance-sheet - debt-crisis recession. This will take at least 5-6 years to work through, after we begin to deal with the problem, which we have not. There is not a political fix. There are just some things the private sector has to do for itself.”

Fig 1

Consumer confidence. Confidence rebounded strongly in November and December putting the index at its highest level since April. On a 3 month moving average, (3MMA) basis, confidence is exactly back to where it was in November 2010 but the view of the present situation component has improved over the last 12 months, (Fig 2). US households continued to repair their tattered balance sheets in 2011. Outstanding household debt (which includes mortgages, credit card balances, and other types of consumer loans) fell further this year and is now down 5 percent from its peak in 2008. This should contribute to consumer spending but household-debt-related headwinds will continue through 2012.

Fig 2

Housing starts, inventories and prices. The 3MMA of housing starts rose by 5.4% in November; this breaks down to a gain of 14.1% in apartments and 1.7% in single units, (Fig 3). On a regional basis the North East had by far the largest improvement with a gain of 23.8% in total starts compared to three months through October. Months of unsold inventory have been flat at 8.4 for the last four months, (Fig 4). The rate of price declines slowed in October for the 5th consecutive month but prices continue to fall in 19 out of the 20 metros covered in the S&P/Case-Shiller® Home Price report. According to RealtyTrac, U.S foreclosure filings were up more than 7% in October and the share of distress sales to total sales also rose in October, which weighed on prices.

Fig 3

Trucking regulation. Final DOT ruling. Effective July 1st 2013 truck drivers will be required to reduce their maximum daily driving time from 12 hours to 11 hours and operate their rigs no more than 70 hours per week, down from 82 hours. A 30 minute break must be taken after driving 8 consecutive hours and in any week in which a driver maximizes his/her hours they must have two nights in which downtime runs from 1 am to 5 am. Bottom line for the metals industry; less flexibility in delivery schedules. (Source AMM).

Automotive production and sales November. NAFTA light vehicle assemblies on a 3 month moving average basis were up by 124,000 units or 12.2% in the 3 months through November, compared to the same period last year, (Fig 1). In the single month of November, US light vehicle production dropped by 10.1% from October as total production in Canada and Mexico rose by 1.6%. Production of medium and heavy trucks in NAFTA in the three months through November was up by 46.9% from the same period last year. US light vehicle sales reached 13.63 million units on a seasonally adjusted annualized basis, up from 13.26 million in October. In 3 months through November auto and light truck sales were up by 8.9% and 11.5% respectively year on year, (Fig 2). In the month of November import market shares of autos and light trucks were 34.5% and 14.3%.

Fig 1

Non residential construction starts. Excluding single family residential, building construction grew by 2.2% in the three months through November compared to the same period last year. Construction has bottomed out but there is no sign of a significant revival, (Table 1). The 12 month total on a rolling square footage basis was 744.6 million down by 60.4% from the recent peak of 1.88 billion square feet in calendar 2007. The largest sector, education, declined 11.5% in 3 months through November year on year. Apartment construction is the only bright spot with a year on year growth rate of 71.5%, (Fig 3). Based on falling vacancy rates and consumers unwillingness to commit to single family residential, the trend for apartments will continue. Excluding apartments the year on year growth of non residential buildings in three months through November was negative 4.4%.

Table 1

Service centers purchases, shipments and inventories, US and Canada November. Tons / day purchases of all carbon products in the US declined by 2.7% as shipments increased by 2.6% month on month. Structurals were the exception on the intake side and increased by 37.9% from October but over a longer term structural intake has been flat for over 2 ½ years. Inventories declined for all products, (Table 2), months on hand declined from 2.47 to 2.44. Canadian service center’s intake of all carbon products were down by 16.6% in tons / day as shipments also declined by 4.3%. Pipe and tube was the exception where intake increased by 13.7%. Total inventories were down by 9.6%, months on hand declined from 2.81 to 2.52. Pipe and tube were the only products exhibiting an inventory increase, (Table 3).

Table 2

Price / demand outlook through mid March 2012. The Steel Business Briefing price / demand survey is published each Wednesday and is a steel consumer’s view of conditions three months ahead. On Dec 12th a net 40% expected prices to be higher in mid March than today and a net 48% expected demand to be higher, (Fig 4). This means on price for example the number of responses expecting an increase was 40% higher than those expecting a decrease. The specific numbers were; 64% of respondents expect higher prices, 12% expect no change and 24% expect lower prices. The Goldman Sachs Annual Global Steel conference on November 29-30 included presentations by about 25 steel companies from across the supply chain. Presenters were more positive than GS expected, particularly from the US participants. Aside from the normal seasonal slowdown, the companies were of the opinion that the business environment is steady and their customers are optimistic about 2012. Mills indicated that lead times have stretched as buyers are trying to beat the announced price increases.

Fig 4

Scrap exports. Total ferrous scrap exports declined in October for the 2nd month in a row to just under 2 million tonnes. All major players, (except China which was up 95,000 tonnes), were either flat or down, (Fig 5). YTD total through October was almost 21 million tonnes, up by 24.8% from the first ten months of 2010. On Wednesday, AMM reported that, “December scrap exports were bubbling with East Coast exporters attempting to fill orders as quickly as possible and West Coast exporters seeing strong demand from the Pacific Rim.

Fig 5

Industrial construction expenditures will exceed $111 Billion in 2011 with over 80 Billion of contracts already in place for 2012. In 12 months through November growth was 44.3% year on year, (Fig 1). Power projects are still by far the largest project category accounting for 36.6% of the 12 month total, industrial manufacturing accounted for 20%, (Table 1). The West coast will come in as the strongest region in 2011 followed by the Rocky Mountains and South West. The South West is leading in contracts for 2012; contracts in place for the Mid West and Mid Atlantic for 2012 already exceed starts in 2011, (Fig 2).

Fig 1

Scrap price benchmarks. Last week the AMM Chicago shredded scrap price was raised to $440 / gross ton concluding what has been the most stable year of scrap prices since 2001. Since 2000 there has been an inverse correlation of 90.1% between the price of Chicago shredded and the Broad Index value of the US$ and a 91.8% correlation with Brent crude. As of December 8th scrap is exactly in line with crude oil, (Fig 3), and over priced relative to the US $, (Fig 4). There is also a looser relationship between scrap and iron ore, (Fig 5). The price of ore dropped $50 / tonne in the two months October and November and had recovered $6.75 by December 13th. SBB reported on Tuesday that shredded scrap prices in the US showed a significant increase for the second consecutive week driven by export demand, seasonal factors and an inventory perceived to be relatively low throughout the supply chain.

Fig 3

Global business confidence. Despite the improvement in business sentiment, it remains fragile and consistent with an economy that is growing only at the low end of its potential. There is a wide disparity in confidence between regions. South America and the Asia pacific region have been improving since the summer, but the US remains despondent and European confidence is responding (finally) to the sovereign debt crisis, (Fig 6). Most encouraging overall is an improvement in hiring intentions and the broad assessment of current economic conditions is good. Expectations regarding the economy’s prospects next year have improved, (Economy.com). According to the latest Manpower survey, employers worldwide expect a slower pace of hiring in the first quarter of 2012 compared with the fourth quarter of 2011. There was a deterioration in hiring sentiment in China and the EU with some improvements in the U.S., Japan, India and Latin America.

Fig 6

Ocean and rail freight markets. The Mid Ship Report sees current ocean freight rates as severely depressed. The only decent rates that can be obtained are when ships are available at short notice. The current uptick in the Pacific Capesize market is not expected to persist because of credit market restrictions on coal and ore deals and will remain weak as a fleet growth of 15% comes on stream in 2012. Surplus tonnage is also negatively affecting Panamax rates on the Pacific and Atlantic routs, (Fig 7). The Association of American Railroads publishes rail traffic data weekly. US rail-carloads of primary metal products, mainly steel, were up by over 20% in November compared to November 2010, (Fig 8). Iron and steel scrap shipments which had been trending higher than 2010 for the previous five months, declined in November to the same tonnage as November 2010.

Fig 7

Total Construction. Commerce Department. October. Declined 7.8% and 10.2% in three months and twelve months through October compared to the same periods last year. Momentum is positive. The decline in private construction slowed to 3.4% in three months with 5.5% positive momentum. State and Local work declined at a 15.4% annual rate showing no improvement since June, (Table 1). The decline of infrastructure work accelerated for each of the last six months and in 12 months through October had declined at a 6.4% rate, (Fig 1). These numbers are inflation adjusted. In spite of all we read in the press, the rate of infrastructure expenditure is still very high by historical standards. Also total construction reports do not jive well with the consumption of rebar and structural steel. We believe that Commerce Department does not do a good job of picking up industrial construction data which might be the cause of the discrepancy.

Table 1

Producer price indexes, construction and engineering materials. Inflationary pressures are moderating as producer prices fell 0.3% in October following September’s 0.8% increase. Excluding food and energy, producer prices were unchanged in October, a deceleration from September’s 0.2%. Fabricated structural steel and structural tubing both escalated relative to structural steel. Concrete and lumber prices remain basically flat. There has not been much relative change between carbon steel castings and impression die forgings during the last 1, 3 or 12 months. Carbon steel wire is tracking closely with plastic construction products, (Table 2).

Table 2

Manufacturing and construction employment, November. Manufacturing eked out a small gain of 2,000 in November and has only gained 7,000 in the last three months. The motor vehicles and parts sector has gained 10,000 in the last three months. Total construction lost 12,000 in November but has gained 4,000 in the last three months based on a strong September, (Fig 2). Construction of buildings was up 8,000 in the last three months, all of this gain came from industrial which ties in with our other construction statistics. Total job creation was +120,000 in November. September and October were revised up by 72,000. The November gain was split, + 140,000 for private and – 20,000 for public, (Fig 3).

Fig 2

Import licenses, November. US licensed long product tonnage declined 15% in November from the October volume. Through November YTD, tonnage is up 4% from last year, (Table 3). All products except rebar declined in November. Wire rod made the greatest contribution to the overall decline, down 23,500 tons. Total Canadian permitted tonnage YTD 2011 was up by 6% from 2010. November was up 7% from October. The biggest increase in November was rebar, up 11,000 tons, followed by beams, up 6,500 tons, (Table 4). US market share of total long products was almost unchanged at 71.4%. US market share of rebar dropped from 99.9% in October to 69.3% in November. Beams rose from 86.0% to 93.6% in the same timeframe.

Table 3

Steel Demand Indicators; Table 5 is a snapshot of the market situation on 12/08/11. In most cases values are three month moving averages. The “Present” section is more red than green, particularly for construction indicating weak fundamentals by historical standards, the latest month or quarter for which data is included is identified in the 2nd column. Green in the “Change” column indicates movement in the right direction and vice versa. Indicators updated since last week are shaded beige. (Explanation of Indicators).

Table 5