Five Recent Demand Trends – What to Make of Metal Consumption?

A spate of headlines this week, when aggregated, paint an interesting picture of Western demand from key metal industry segments. We’ll examine those headlines and summarize what the signals tell us from a demand standpoint.

The first headline, from the Wall Street Journal, discusses Honda’s operating results released earlier this week. Rather than commenting on their operating results (which we touched on in a post yesterday), Koichi Kondo, Honda Executive Vice President, made this statement, “Subsidies will be gone in almost all markets by the end of the year,” he said. “We expect the reversal impact will be significant from April” when the next fiscal year starts. MetalMiner has previously suggested that once the stimulus dollars for programs such as Cash for Clunkers run out, demand will retreat. Honda has factored that reality into its forward-looking statements. This does not bode well for increased steel consumption (and some aluminum and related metals) from automotive demand.

This second article, from Yahoo Finance reports consumer confidence numbers as published by The Conference Board. A rosy view would consider these numbers “tepid but they still paint a somewhat negative picture on consumer confidence, “The Consumer Confidence Index, released by The Conference Board, sank unexpectedly to 47.7 in October — its second-lowest reading since May. Forecasters predicted a higher reading of 53.1. According to the article, a reading above 100 equates to strong growth and anything above 90 indicates a healthy economy. We can’t see big demand growth in consumer goods, as an example without an improvement in consumer confidence.

Our third headline comes from Reuters and suggests the latest price trends from Standard & Poor’s S&P/Case-Shiller Home Price Index may have moved into “bubble territory. According to the article, a couple of markets (Minneapolis and San Francisco) have seen prices increase by 10% or more. Home prices in general have increased by 1.2% in August from July. Analysts had expected an increase of only .7%. Though some markets may appear frothy, Shiller goes on to say that he doesn’t believe that rising unemployment will actually hurt home prices.

On the flip side of rising home prices we saw this Reuters article, also on the housing market, showing a continued drop in the number of new single-family home sales of 3.6% from August numbers. Analysts had expected the numbers to increase. On the other hand, the same article mentioned durable goods orders increased last month creating a two month trend (line). What to believe? Residential construction remains depressed whereas durable goods orders appear like a bright shining star.

But coal producer Massey Energy in their earnings announcement earlier this week stated coal demand remained weak while inventories increased because of slower electric power generation demands, a move toward more gas fired power generation, and a drop in contracting and shipping activities.

And finally, we couldn’t resist commenting on the predictions of Dr. Nouriel Roubini, professor of economics and international business at the Stern School of Business at NYU, in which he said that seeds of the next crisis may appear in commodities and not just oil. According to Roubini, “In my view, rising commodity prices are not justified by the fundamentals, and we would agree.

So what can we conclude with all of these trends? The road to recovery, like commodity prices in the last 24 months, will feel more like a roller-coaster and less like a smooth sail.

–Lisa Reisman

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