Non residential starts down, industrial up. In 3 months through April non residential starts were down and the single month of April was down 21% from April last year. Three months through April was down 6.2% y / y with negative momentum of 9.7%, (Table 1). Excluding apartments > 4 stories the three month comparison was down 8.2%. The only bright spot was warehouses, up 55.9% in 3 months y / y; even apartments have slowed and now have 41.5% negative momentum. This is only the second time in 16 months that the three month growth rate has been negative (Fig 1). The Architects Billing Index also moved to contraction in April after five straight months of expansion. In contrast, industrial starts were up 108.7% y / y in 3 months through April driven by energy and power projects. All regions except the Great Lakes and New England expanded strongly. With projects already confirmed to start this year, the SW, SE and MA regions are already way ahead of last year’s total.

Table 1

Service center intake, shipments and inventories, US and Canada. US service centers built inventory in all products in April as daily shipments of all products declined. Overall months on hand grew to 2.57 in total from 2.32 at the end of March. The recovery of plate and flat rolled has been better than that of long products since the end of 2009, (Table 2 and Fig 2). No product group has yet achieved the level before the crash and all took a step backwards in April. Canadian service center shipments in April were also down but only on account of plate and pipe and tube. Total months on hand rose from 2.99 to 3.26 because with two less days in the month, April’s total shipments were down by 52,000 tons. Daily shipments of plate are still well above the level before the crash and bar products continued to recover strongly. Structurals have had the weakest recovery of all products for almost a year, (Table 3 and Fig 3).

Table 2 & Fig 2

Apparent supply of all steel products. AISI data for all steel products in Q1 2012 indicates a growth of 15.4% y / y, (Table 4). Longs were up 19% and flats up 15%. There was a wide spread between the high and low of individual products. Over the longer term, (18 months), flat products have done much better than longs, (Fig 4). Import market share for all products combined was 23.1% in Q1 2012 and has ranged between 20% and 25% for the last two years.

Table 4

Producer price indexes, construction materials. The BLS producer price indexes indicate that the price of concrete is lower than it was in January 2009 but that structural steel, HSS and lumber have all escalated. HSS has become less competitive compared to structural steel shapes in the last three years as both have lost ground to lumber (Fig 5). The price of lumber seems to be immune to commodity market volatility as its price index has been in a narrow range for the last 20 years. The price of asphalt has been steadily increasing for three years as concrete has been flat to down, (Fig 6). This will continue to incent State DOT decision makers to favor continuously reinforced pavement with a resultant positive effect on rebar demand. The overall PPI for “Materials and Components of Construction,” has been rising steadily at a y/y rate of 2 to 4% for the last two years and is now higher than it was before the recession. Please note that these indexes only represent relative price changes since 1982, they do not compare specific dollar based unit prices.

Fig 5

Producer price indexes, engineering materials. Impression die forgings have steadily gained in competitiveness against castings since early 2009. There is no PPI data for aluminum forgings and castings, the only guide we have to aluminum is the mill shapes index. This indicates that the threat to steel forgings has increased since the beginning of the recession which has negative implications for auto forgings in particular, (Fig 7). The healthy spread between carbon steel wire and plastic construction products that existed until the end of 2003 had almost disappeared by the middle of last year but so far in 2012, the spread has been re-emerging in favor of steel wire, (Fig 8). Please note that these indexes only represent relative price changes since 1982, they do not compare specific dollar based unit prices.

Fig 7

Vehicle production and sales; Total light vehicle production in NAFTA was down in April but the 3 month moving average continued to increase. In the last 12 months production was, US 9,052.134 units, Canada 2,215,158 units, Mexico 2,660,257 units. The difference in recovery between the US and Canada v Mexico continues to be extraordinary, (Fig 1) however the US has made up a little ground in the last 12 months as Canada has lagged. German industrial conglomerate Evonik Industries AG says that it will take at least three months for its damaged chemical plant to resume normal production of CDT, which is a critical material used as a coating on fuel and braking systems on most passenger cars worldwide. Automakers are scrambling to figure out whether they'll have to stop production for a while in response to this shortage. Y / y auto sales in the US were up 9.1% in April at an annual rate of 14.4 million units. Cars continued to outpace light trucks with a sales rate of 7.4 million units. This has been the case for the 4th consecutive month as buyers have responded to higher gas prices, (Fig 2).

Fig 1

Regional commercial construction, vacancies and completions by project type. Reis monitor commercial property vacancies, absorption of space and new completions for the US on a quarterly basis by five regions. In Q1 2012 every region had a net absorption of square footage greater than completions for three property types, office, retail and apartments. As a result vacancies for all property types declined in all regions, (Table 1). The bad news is that absorption and completions of both offices and retail, though improving slowly, are still depressed. Apartment absorption is greater than at any time since 1999 and is the only commercial sector with good construction prospects in the immediate future. Net absorption and completions in the last year in millions of square feet were; office 20.0 and 11.3, retail 7.2 and 6.6, and apartments 164.5 and 39.1.

Table 1

Truck, rail and ocean, freight. Demand for flatbed trucking services improved in April y / y as growth in automotive production, oil and gas exploration, steel production, and incrementally improved commercial construction all contributed. Through April 23rd, flatbed rates in the spot market were $2.12 per mile; 5% higher than the same time in 2011, (Fig 3). Tight capacity will continue through 2012 as migration to less labor intensive modes (i.e. dry-van) attracts remaining drivers. (Source Cleveland Research). US railcar loads of steel and other primary metal products in April were up by 8.1% from April 2011 and 14.5% from April 2010 (Fig 4). Scrap shipments were up by 5.3% and 12.5% on the same basis. Total US railcar loads were down 5.5% over April 2011. Coal was the main reason for the decline due to the mild winter and also low natural gas prices makes gas based electricity generation more economical. (Source Rail Time Indicators). After reaching an all time low in February, the Baltic Index of dry bulk ocean freight rates has recovered slightly, (Fig 5). The Capesize sector is suffering from reduced iron ore shipments to China as new ships come on stream. Panamax is not doing much better. The smaller Supramax and Handys are benefiting from an uptick in demand. (Mid Ship Report.)

Fig 3

Scrap exports in March were the highest since August last year at 2.15 million tonnes. Turkey had big months back to back and has been the top destination for the last five months, (Fig 6). Compared to Q1 last year, total exports were up 7%, the biggest gainers being Turkey, up 66% and South Korea up 29%. China was down 30%, Canada down 14% and Mexico down 32%. The export market may be slowing as AMM reported on Monday that “Turkey didn’t pick up a single bulk cargo from the US last week while at least two West Coast exporters reported there had been no bulk sales from that region.” On Monday Platts reported another $10 decline in shredded prices delivered E. Coast dock making the negative spread against the Mid West price $27.50, the highest in 27 months.

Fig 6

European debt crisis. The debt bubble has been interrupted, austerity is causing economies to slow, tax revenues are falling, deficits are increasing and more austerity measures are being pursued to keep debt under control. A classic downward spiral. Pro austerity candidates lost their seats in Greece, France and the UK in the last two weeks in favor of growth (more debt) oriented candidates. Germany is not prepared to increase their own debt or take on anyone else’s. Something has to give! This is not simply a banking or sovereign-debt crisis; it is about a massive trade imbalance and huge differences in the productivity of labor. The trade imbalance between the south – Portugal, Spain, Italy, and Greece – and the north (mostly Germany) must be resolved if the currency union of 17 nations is to hold together. The dangers for the US steel industry are that the European mess causes a slowdown of the global economy and a major drop in the value of the Euro, both contributing to a flood of imports.

Scrap price review. Chicago shredded was unchanged at $430 / gross ton in May according to AMM. Platts had iron ore down $4.50 on the 4th compared to this time last month which broke the trend in place for all of this year where scrap and ore moved in opposite directions, (Fig 1). Platts shredded delivered Mid West was down $3.50 to $437.50, as delivered East Coast dock was unchanged at $420, (Fig 2). Overall, few surprises were reported in the market with prices and tonnages, as expected. “The market was a non-event for the most part,” one Midwest scrap yard source said. The $58 surge in Turkish rebar prices delivered Eastern Mediterranean reported last month did not hold and had fallen back $20 on May 4th. Turkey is the most prolific importer of steel scrap on the global market. SBB reported on Monday that, “In the US the early deals for May ended up being the most expensive. After significant sales of obsolete scrap were made at levels $10/long ton higher in late April compared, the market retreated back to early April levels. Shredded scrap ranged from $445-447/l.t in the Northeast to $435-440 in the Midwest. On the export market, the US West Coast was bracing for further decreases in export prices to Asia by about $10/t although some viewed the bottom as nearing. On the East Coast, containerized shredded scrap was $435-440/t FAS East Coast dock with a deal heard as low as $430/t in Florida due to increases in ocean freight.”

Fig. 1

Import licenses, US and Canada. There was a big problem with the US March rebar license numbers which were reported to be 162,000 tonnes with Turkey at 125,000 tonnes. The “Preliminary” total for March came in at only 98,000 tonnes because apparently 60,000 tonnes of licensed Turkish material didn’t show up. We have never seen a deviation close to this in the past. April long products licenses were up 13% over March and by 29% in four months through April compared to last year. By far the greatest tonnage increase YTD has been in rebar even after the March correction is taken into account, (Table 1). Canadian long product imports were up 12% in April from March and up 22% YTD compared to last year. By far the biggest tonnage increase this year is in merchant bars, up 90,000 tons. US market share of all long product imports was 67.5% in April and 75.5% YTD, (Table 2).

Table 1

Bank lending standards and loan demand. The Federal Reserve released its second quarter Senior Loan Officer Survey last week. Demand for commercial and industrial loans increased for all sizes of firms. In the case of large firms, loan demand was the highest since Q3 2005, (Fig 3). Demand has got ahead of supply as only a net 1.8% of banks are loosening lending standards for this category of loan. There is more demand for commercial real-estate loans than at any time since 2003 and a net 13.8% of banks are relaxing standards, the most since Q3 2005, (Fig 4). Mixed news in the prime home mortgage sector with a net 30.3% of banks reporting higher demand, however only a net 1.9% are relaxing lending standards.

Fig 3

Manufacturing and construction employment. The progress of job creation in the last 19 months has been almost exactly the same as in 2004 after the last recession, (Fig 5), (ignoring the effect of census workers). Manufacturing has now gained 485,000 from its low point of February 2010 but is still down by over 2 million since 2006, (Fig 6). There has been much press about “re-shoring” but labor-intensive manufacturing jobs will likely never return. What is coming back is highly automated production that requires limited labor. Labor costs are rising in China and other emerging lands while factory automation slashes U.S. labor inputs. The Japanese earthquake and tsunami-related supply disruption pointed out the risk of sourcing from distant countries, even though ocean transportation costs are currently low. Construction has gained 29,000 in the last 26 months. The only bright spots are industrial buildings and heavy civil engineering, (Table 3).

Fig 5

Steel Demand Indicators; Table 4 is a snapshot of the market situation on 05/10/12. In most cases values are three month moving averages. The “Present” section is still balanced between OK and weak with only four indicators flashing green. The general economy and manufacturing are OK but not great, construction is depressed and steel demand is still weak by historical standards. The positive momentum that has been evident for over a year has slowed with thirteen indicators currently moving in a positive direction as twelve are weakening. The latest month or quarter for which data is included is identified in the 2nd column. Indicators updated since last published are shaded beige. (Explanation of Indicators).

Table 4

GDP 1st Q 2012 and pointers for steel. GDP grew 2.2% in Q1, slowing for the first time in four quarters. Personal consumption contributed 2.04% to growth in Q1 and accounted for 70.7% of all activity, (Fig 1). Factors of interest to steel people are that inventories increased which was a positive contribution for the last two months. Fixed non residential investment had a negative contribution for the first time in over two years, this includes infrastructure and confirms the Commerce Department construction put in place numbers. Fixed residential investment contributed 0.4% which must be the current rapid growth of apartment construction. Durable goods which are part of personal consumption are doing really well, up 15.3% after the 16.1% increase in Q4 2011, (Fig 2). Government had a negative contribution of 0.6%, (Fig 3).

Fig. 1

Global steel production forecast through 2013. The World Steel Association updated its forecast through 2013 last week. Global steel production is expected to grow 3.6% this year and 4.5% in 2013. North American production is forecast to grow 5.2% and 5.1%, and China by 4.0% and 4.0%. The Chinese slowdown has implications for future iron ore prices as more mines come on stream around the world. We are living in the fourth cycle of steel growth since 1930 with production in 2022 projected to be 1.8 Billion tonnes, up 21% from the revised 2013 forecast, (Fig 4). Growth will be supported by the explosion of infrastructure projects in the developing world. Latest estimates indicate that the world will see between $25 and $30 Trillion of new infrastructure projects in the next 20 years. (CIBC. Canadian Imperial Bank of Commerce).

Fig. 4

US steel production, capacity utilization and benchmark new unemployment claims. US steel production broke through 2 million tons per week in w/e April 21st for the first time since September 20th 2008 when we were on the edge of the precipice. On a four week moving average, production was 1.959 million tons, up 7.2% year on year. Capacity utilization in the latest period was 81.1%, (Fig 5). The inverse correlation between steel production and new unemployment claims is > 90%. Since January 2004 there have been five instances where steel production got out of line, on four of those occasions the level of new unemployment claims accurately predicted future steel production. The lines are once again diverging, (Fig 6). If this trend continues, history teaches that there will be a downward correction in steel production.

Fig. 5

Currency update and net steel imports. There is a strong long term relationship between the balance of steel trade, (net imports) and the value of the US$, (Fig 7). The import surge of the first four months of this year does not seem sustainable though it could take months for this to be worked out. The Broad Index is the value of the US $ weighed against a basket of the nations major trading partners. The $ value against individual currencies of the steel trading nations does not necessarily follow the same pattern so we also watch individual nations exchange rates, (Table 1). There have been some big swings in the last year with the currencies of Brazil and Turkey both being down by over 16% and imports from those nations being up by 44% and 91% respectively from this time last year. In the seven days through April 28th most steel trading currencies strengthened but Brazil and Turkey continued to weaken, (Fig 8). The appreciation of the Chinese Yuan has stalled in 2012. The Euro has been > 1.30 to the $ since January 12th, some analysts have predicted a fall to below parity as the European crisis unfolds which would be a very bad outcome for the US steel industry.

Fig. 7

Non residential construction starts grew at an annual rate of 10.8% in Q1 compared to Q1 last year. This is considerably lower than the figure of 27% three months year on year reported last month due to data revisions. At this rate it will be the end of 2016 before the one billion annualized square feet will be realized, a level that was the cyclical bottom in all previous recessions since 1970. The bright spot for steel is warehouse construction which in Q1 grew 97.7% year on year, (Table 2). Other big volume sectors, retail, apartments and parking garages continued to do well as educational buildings continued to shrink.

Table 2

GDP forecast through 2017, US, Canada, Mexico and Global. The IMF World Economic Outlook was updated in April; changes quoted here are comparisons with the September 2011 report. The Global growth forecast was reduced by 0.33% / year for the period 2012 through 2016. North America fared better than the world as a whole which was negatively affected by projections for Europe. The 2012 forecast for the US was increased from 1.8% to 2.1%, for Canada from 1.9% to 2.1% and Mexico was unchanged at 3.6%. Through 2015, US growth accelerates and catches up with Mexico as Canada languishes, (Fig 1). Ms. Christine Lagarde, Managing Director of the IMF, said more work is required to support the still fragile recovery. “We have seen some improvement in the economic climate. But let me also underline this point: the risks remain high; the situation fragile.”

Fig 1

Global steel production and capacity utilization were a pleasant surprise in March after the declining trend that has been evident since last July, (Fig 2). The annualized rate of production for Q1 2012 was over 1.5B tonnes and the one month of March annualized came in at 1.586B tonnes. Capacity utilization for Q1 was 77.3%, way down from where it was in H1 2008 because of all the new capacity that has come on stream since then. Global capacity is now almost 2B tonnes / year. Compared to Q1 2011, production in Q1 2012 in Asia, the EU and North America were +1.5%, -3.9% and +6.7% respectively. China, who had been reported to have cut production to support domestic prices, produced a record 174M tonnes in Q1 2012.

Fig 2

Regional job creation. The States collect employment statistics independently of the Federal Government. In five quarters through Q1 2012, the States have compiled total jobs created as 2,172,000 as the Feds report 2,475,000. A reasonable agreement since both are estimates. The only region to have fully recovered from the recession is the South Central which now has 153,000 more people employed than it did at the time of the previous peak in January 2008. All other regions are still in the hole, the worst being the South East which has 6.9% fewer people employed than in January 2008, (Table 1). Compared to the low point in January 2010 with the exception of New England, and the South Central, the job recovery has been remarkably consistent, ranging from + 2.2% to + 3.0%.

Table 1

Industrial production, capacity utilization and durable goods orders. The growth of industrial production slowed in March to 3.8% year on year on a 3 month moving average basis but is still on track to move to an all time high in Q2 next year, (Fig 3). Some of the pickup in first quarter manufacturing output was due to strong auto production but excluding the auto sector, production grew at an annual rate of 8.3%, nearly double the prior quarter’s rate and the fastest since the second quarter of 2009. Manufacturing capacity utilization was 77.2% in March, a slight decline from February but the upward trajectory is strong. Advanced orders for durable goods fell 4.2% in March from the February level but year on year on a 3 month moving average basis the growth rate is currently 5.7%, (Fig 4). This is another example of monthly data being negatively reported in the press before a new trend, if any has emerged.

Fig 3

Steel Demand Indicators; Table 2 is a snapshot of the market situation on 04/26/12. In most cases values are three month moving averages. The “Present” section is still predominantly red for steel and construction indicators indicating weak fundamentals by historical standards. The present situation of the general economy and manufacturing are OK but still not great. The good news is that trends are generally moving in the right direction with 14 of 25 indicators showing positive growth. The latest month or quarter for which data is included is identified in the 2nd column. Indicators updated since last published are shaded beige. (Explanation of Indicators).

Table 2

NAFTA Automotive production in March was the highest since November 2007 at an annualized rate of 16.8 million units. In the 1st Q the US did particularly well with LV production up 19.9% y/y as Canada and Mexico grew by 6.5% and 10% respectively, (Table 1) and (Fig 1). The NAFTA production plan for Q2 has been increased to 4,086,900 cars and trucks, a 5% increase over Q1. The proportion of autos in total US LV production is gradually increasing and reached 39.1% in Q1. The same value for Canada and Mexico is 44.3% and 63.3% respectively. The shift of auto manufacturing to south of the border is continuing. Ford plans to invest an additional $1.3 billion at its stamping and assembly plant in the northern city of Hermosillo. The plant makes the Ford Fusion midsize sedan. This brings the total Ford investment in Mexico in recent years to $4.3B. Honda has broken ground for its second Mexican vehicle plant, an $800M light vehicle and engine assembly complex in Celaya. Start up planned for early 2014.

Table 1

Scrap exports in February returned to the level that existed in 2008 – 2010 but YTD were 19.2% below the monthly average for 2011, (Fig 2). Turkey has been the major buyer for the last four months and for 13 of the last 16 months, exceeding 600,000 tonnes in February. West Coast shipments to the Far East totaled 833,000 tons in February, an increase of 20% over January but so far in 2012 shipments in that direction are down from each of the last four years; another indication of a slowing of the steel market in that region. AMM reported on Tuesday that in w/e 4/13/2012 Chicago shredded was holding at the April published price of $430 / gross ton.

Fig 2

Service center purchases, shipments and inventories. US and Canada. US service centers took in 164,300 tons per day, (tpd) in March, a decline of 5.7% from February and an increase of 1.4% from March last year. Structurals at 9,300 tpd had the largest decrease in intake in the month of 28.8%. Shipments were 165,800 tpd, down 0.5% but up 4.5% from March last year. Carbon flat rolled accounted for all of the month on month decrease. Inventories were down 33,300 tons with structurals having the greatest decline, (Table 2). Total months on hand dropped from 2.43 to 2.32. Canadian service centers took in 24,800 tpd in March, a decline of 10.0% from February and of 6% from March last year. All of the decrease in intake was attributed to flat rolled and tubulars. Shipments were 25,500 tpd, up 2% in the month but 1.0% lower than March last year. All products except structurals had a month on month shipment increase. Inventories were down 15,700 all of which was in flat rolled, plate and tubulars, (Table 3). Total months on hand dropped from 3.22 to 2.99.

Table 2

Housing starts, inventories and prices. The shift towards apartments continued in Q1 as q / q single family and multi unit grew by 2% and 5% respectively, (Fig 3). Total starts were up 3% q on q but there were large regional differences. North East up 3%, Mid West down 18%, South up 14% and West down 7%. In February the months’ supply of unsold homes inched up to 5.8 from 5.7 months in January. This is around the level the industry believes to be necessary to stimulate new construction and is reflected in the permits data which have been improving as vacancies have fallen. Price data lags starts but the latest information indicates that the price bottom has still not been reached. In Q4 2011 only the West South Central region had seen a return to price appreciation. The gradual improvement in the housing market will lead non residential construction and stimulate infrastructure work.

Fig 3

Federal Reserve Beige Book; Reports on current economic conditions for each of 12 districts. The April 11 the report confirms positive data from other sources and reported that no district has a contracting or stagnant situation. “Reports from the twelve Federal Reserve Districts indicated that the economy continued to expand at a modest to moderate pace from mid-February through late March. Activity in the Boston, Atlanta, Chicago, Dallas, and San Francisco Districts grew at a moderate pace, while Cleveland and St. Louis cited modest growth. New York reported that economic growth picked up somewhat. Philadelphia and Richmond cited improving business conditions. The economy in Minneapolis grew at a solid pace and Kansas City's economy expanded at a faster pace.”

Scrap price review. The April $10 decline in Chicago shredded continued the trend in which scrap and iron ore have been moving in opposite directions all year, (Fig 1). The implication for future scrap price is up. Platts shredded delivered Mid West was down $8.50 as delivered East Coast dock was down $2.50, (Fig 2). The implication for future scrap price is neutral. AMM reported on Tuesday that, “Ferrous scrap export prices driven higher by demand from Turkey.” Platts quote that Turkish rebar export prices to the Eastern Mediterranean have jumped $58 / ton since March 7th reversing a two month decline, (Fig 3). The implication for future scrap price is up as Turkey experiences improved demand in its primary market.

Fig. 1

2nd Quarter Price and Demand expectations by Product and Market. At the beginning of each quarter UBS Investment Research surveys steel consumers in a range of manufacturing industries to develop a forward look of price and demand expectations. The current survey had almost 300 responses. For long products, price expectations for SBQ were the strongest and for rebar the weakest, (Table 1). Demand expectations are more positive than negative with only 7% indicating an expectation for demand to decrease next quarter. That said, the majority, 64%, expect demand to remain flat q/q. Demand expectations were strongest in agricultural businesses and weakest in residential construction, (Fig 4). The UBS report supports other data sources that are reviewed in this weekly market update.

Table 1

Automotive sales. U.S. light vehicle sales reached a seasonally-adjusted annual rate of 14.4 million vehicles for the month of March, the third straight month when the pace has topped 14 million. The 1st quarter was the strongest in four years. Auto sales in March accounted for 53% of LV sales, a preeminence over light trucks that has been rare since 2000, (Fig 5). Moody's Analytics expects vehicle sales to reach 14.7 million units for the year and ramp up to 16 million in 2013. Laura who puts this report together for you all did her bit by buying a Jeep Patriot this weekend. Better gas mileage and lower insurance. Definitely a data point! Import market share in March was the highest since September 2010; autos came in at 32.7% and light trucks at 15%.

Fig. 5

Consumer credit expanded by $8.7B in February continuing the trend that began in September 2010. The entire February gain was in the installment segment, which handles financing for big-ticket items, automobiles in particular. In the revolving credit segment, mainly credit cards, there has been no net gain since November 2010, (Fig 6). Consumer credit will be helped this year by an easing of lending standards but demand for credit is on a knife edge. A slowly healing labor market will boost income growth and give consumers more confidence but rising gas prices and the continued decline in home prices will detract from consumer spending. This issue will drive future steel demand since the consumer still accounts for more than 70% of GDP.

Fig. 6

Industrial construction starts in 12 months through March were up by 23.4% year on year. The biggest gain has been in renewable energy, wind and solar. Power plants continue to be by far the largest sector with confirmed projects for 2012 at over $33B, (Fig 7). The South West and Mid Atlantic already have project confirmations for 2012 in excess of the total for 2011. The West Coast is lagging and looks certain not to reach the 2011 level this year, (Fig 8). (Source Industrial Information Resources.)

Fig. 7

Total construction, positive growth for the first time since June 2006. Based on a 3 month moving average and inflation adjusted, (Fig 1). The growth is being entirely driven by private work, non residential buildings in particular. State and local construction declined by 5.6% in 3 months through February y on y, (Table 1). Total infrastructure expenditures declined by 6.5%. This report from the Department of Commerce is very good news for the recovery of structural steel but doesn’t provide any encouragement for concrete reinforcing products.

Fig 1

Global scrap trade in Q4 2011 was almost exactly the same as in Q3, (Fig 2). The US share dropped from 27.5% to 22.0% as US exports fell by 1.3 million tonnes. Tonnage out of both the EU and Russia increased. In 2007 Russia instituted an export tax and administrative measures that led to a sharp decline in scrap exports but there has been a significant recovery in the last seven quarters. On February 13th a Russian customs regulation was adopted that excludes Vladivostok, Nakhodka and St. Petersburg from the list of permissible shipping points. This represents a clear effort by Russia to erect yet more administrative barriers to scrap exports. China’s scrap imports continue to be stable through the 4th quarter, (Fig 3). The huge surge in 2009 coincided with the cancelation of long term iron ore contracts by the big three, a strong indication of the link between iron ore and scrap. Turkey continues to be the major scrap importer with a 20.2% share of total world trade in Q4.

Fig 2

Manufacturing index continues in growth mode. The positive trend of growth in the ISM index has continued for 32 consecutive months, (Fig 4), new orders posted its 35th consecutive month of growth. There is a strong relationship between the ISM index and GDP growth which currently is pointing to an economic expansion of 3 to 4% in Q1, more than many analysts are predicting. The Census Bureau report of manufacturing activity in February reported: New orders for manufactured goods in February, up $6.0 billion or 1.3%. Shipments, up nine consecutive months, increased $0.3 billion or 0.1%. Unfilled orders, up 22 of the last 23 months, increased $12.1 billion or 1.3%. The unfilled orders-to-shipments ratio was 6.23, up from 6.12 in January. Inventories, up twenty-eight of the last twenty-nine months, increased $2.2 billion or 0.4 percent to $616.8 billion continue to be at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.6 percent January increase. The inventories-to-shipments ratio was 1.33, unchanged from January.

Fig 4

Import licenses, US and Canada, March. US licensed tonnage for long products jumped 19% in March, (Table 2). The biggest change was in rebar, up 76% to 181,000 tons of which 145,000 tons was from Turkey. Mexico at 29,000 tons accounted for most of the balance. Wire rod was up 10% to 131,000 tons, Turkey was the biggest contributor at 50,000 tons followed by Canada at 37,000 tons. Total long product licenses are up 38% YTD. Total permitted long product imports to Canada in March dropped 3% to 189,000 tons, off shore tonnage was down by 25%, (Table 3). US market share rose from 76.2 to 81.7%. The biggest change YTD has been in merchant bars, up 66% to 122,000 tons of which 72% came from the US.

Table 2

Steel Demand Indicators; Table 4 is a snapshot of the market situation on 04/05/12. In most cases values are three month moving averages. The “Present” section is still predominantly red for steel and construction indicators indicating weak performance by historical standards. The present situation of the general economy and manufacturing are OK but not great. The good news is that trends are generally moving in the right direction with 19 of 25 indicators showing positive direction. The latest month or quarter for which data is included is identified in the 2nd column. Indicators updated since last published are shaded beige. (Explanation of Indicators).

Table 4

Non residential construction starts surged by 26.3% in three months through February compared to the same period a year ago, (McGraw Hill, Dodge). Starts on a rolling 12 month basis were up 10.2% y/y, momentum based on February data was a strong 16%, (Table 1). The strongest sector was warehouses up 92.6% which is a vote of confidence in future economic growth. Educational construction, the biggest sector, has turned around and grew 6.5% y/y after contracting since November 2008. The gradient of the recovery is looking a lot like 1994 which would put total non residential starts at a 1.3B square feet rate by the end of 2014, (Fig 1).

Table 1

Steel supply, domestic shipments + imports. Long products. In 2007, supply of long products not including SBQ exceeded 7,000,000 tons / 3 months for most of the year. In December through February 2012 supply was up but barely exceeded 5,000,000 tons, (Fig 2). Capacity utilization in this period was 77.5%. Import market share was 16.9% in both January and February, the highest since April 2010. Total supply in the last three months y/y was up by 11%; wire rod had the best performance, up 21.5% and beams the worst up 6.7%, (Table 2).

Fig 2

Highway bill. The Senate passed a $109B two year highway bill on the 14th which includes a buy America amendment requiring public funded projects to include domestically manufactured materials. On the 21st the House Budget Committee passed a proposed 2013 budget resolution that would reduce Highway Trust Fund spending authority by 36% to just $57.1 billion in FY 2013 beginning on October 1, 2012. This proposal failed in a House voice vote on Tuesday. The present extension expires at Midnight on Saturday. The steep cut in transportation and other programs are part of an effort by Republicans to reduce the deficit, and in some cases the scope of federal government activities. In 12 months through January, expenditures on highways and streets have declined by 24.5% since the peak in October 2009 and by 14.9% year on year, (Fig 3).

Fig 3

Consumer confidence; both the view of the present situation and expectations, rose again in March on a three month moving average basis. The composite index was the highest since April 2008. The present situation portion is still low but has improved erratically for over two years, (Fig 4). Expectations have recovered to the low end of their normal range, 80: 120. The Conference Board index is sensitive to changes in labor market conditions and this component has been improving for several months. A negative in March was inflation expectations, driven by gasoline prices. Buying plans were stronger across all major segments particularly in the share of consumers intending to make purchases of automobiles and major appliances. Consumer confidence is still severely impacted by the housing situation which is probably the single biggest drag on the economy and on the prospects for a full recovery in steel demand.

Fig 4

Industrial production and manufacturing capacity utilization. Industrial production in the US stalled in February but on a 3MMA basis is still growing at a 4% rate year on year and is now on track to break out to a new all time high in Q1 of next year, (Fig 5). Vehicle sales surged to a seasonally adjusted annualized rate of 15.1 million units in February, far above expectations. This is the highest sales pace since early 2008. Most automakers posted double-digit year-over year gains. Manufacturing capacity utilization continued to recover through February when it reached 77.38%, (Fig 6).

Fig 5

Producer price indices, construction products. There have been huge changes in the relative prices of construction materials over the last 20 years, (Fig 1). Lumber in particular has improved its competitive position since 2004. Concrete has trended down in the last three years as structural shapes and structural tubing have escalated. The differential between tubing and shapes has widened since 2008. Since April 2006, asphalt has escalated by 66.3% and concrete by 8.8% which explains the change in many states attitudes to continuously reinforced pavement highways; a boon to rebar demand.

Fig 1

Trade in rebar, wire rod and beams between NAFTA countries. Trade patterns for these products differ from each other in the extreme. Rebar flows north out of Mexico, picks up volume in the US continuing on into Canada. The US had only a net 79,000 tons of rebar imports in 2011; Canada had almost net 600,000 tons as Mexico had net exports of 475,000 tons, (Fig 2). The US dominates NAFTA in beam trade with net exports of 657,000 tons in 2011 most of which ended up in Canada and Mexico who had net imports of 649,000 tons and 329,000 tons respectively, (Fig 3). Wire rod flows are the opposite of beams with the US having net imports of 948,000 tons as Canada and Mexico had net exports of 196,000 tons and 436,000 tons respectively in 2011. Mexico shipped 66,000 tons of wire rod into Vancouver, (Fig 4). (Note: net means the difference between total imports and total exports.)

Fig 2

Global business confidence may finally be taking on a brighter hue according to Moody’s Economy.com. Businesses are upbeat in their assessment of current business conditions, and expectations about their performance later this year are also improving, (Fig 5). North America continues to have the weakest sentiment but there has been a steady improvement for nine months. “The most significant improvement globally has been in response to the broad question about current business conditions. However, they remain cautious when responding to specific questions about hiring and investment. This is somewhat at odds with the recently improved employment job numbers from the U.S. For the first time since the increase in oil prices, businesses are saying that pricing pressures are building. The confidence survey results are consistent with a global economy that is expanding at the low end of its potential.”

Fig 5

Scrap exports dropped 250,000 tonnes in January from the December volume which is normal for the first month of the year. Compared to January last year the total volume was up by 195,000 tons, (Fig 6). China’s volume was the lowest since September 2010 and is not expected to show much change when February and March numbers are released. AMM reported that the first week of March shipments were dismal with East Coast shippers reporting only two cargoes to Turkey while West Coast yards failed to book any bulk business.

Fig 6

Rig Count. The rotary oil rig count published by Baker Hughes has been escalating without pause since June 2009 and is now up by a factor of six since that low point. Gas rigs have been declining continuously this year, (Fig 7). The active rig count acts as a leading indicator of demand for products used in drilling, producing and processing of hydrocarbons, many of which are steel intensive. After a yearlong drilling moratorium, oil companies are intensifying their exploration and production in the gulf, which will soon surpass the levels attained before the Deep Water Horizon blow out. Drilling in the area is also about to be expanded in Mexican and Cuban waters. Oil inventories in the US peaked in June last year at 372 million barrels, bottomed out in December at 324 million and by March 9th had steadily recovered to 347.5 million barrels.

Fig 7

Steel Demand Indicators Table 1 is a snapshot of the market situation on 03/23/12. 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