Followers of this site might agree that we talk a lot about drivers of pricing for various metals.
Sometimes it helps to examine those drivers in context of the big picture for a particular metal market. Say for example, steel.
When we look at steel markets, we end up talking about things like: the BDI (Baltic Dry Index), the cost of iron ore, coking coal, scrap, electricity prices, auto sales, housing starts, the Architecture Billings Index (ABI), building permits, etc. We could easily name another 25 indicators that coordinate with steel price movements and market trends.
However, we sometimes forget about context.
So when the AISI published its report, Profile of the American Iron and Steel Institute, we took a look to see what bits of data would best serve a steel-buying audience. Based on our review, two parts of the report have great relevance to steel buying organizations.
The first involves a complete listing of AISI members, capabilities, locations and products (hint: a great domestic steel sourcing guide). The second relates back to our discussion on drivers and metrics within the steel industry. In particular, this chart shows where in 2010, steel shipments went by industry:
As we look at this pie chart, it becomes easy to see why certain metrics have relevance within the steel industry. But what we find most interesting involves the metrics that tend not to garner much media attention. This week, we turn to something tracked by the Gerdau Market Update site, involving state fiscal metrics (yes, quick, where does that fit in the above referenced pie chart?)
Editor Peter Wright points to state fiscal receipts. Though his report cites rising state revenues for Q4 2010 vs. Q4 2009, he concludes, “Steel business activity that is driven by state or local budgets will not recover for several years,” as this chart shows. This metric impacts the construction portion of the pie chart.
Taking an 80-20 look at the pie chart, certainly by spending some time tracking metrics that serve as the measures of the health of the construction sector (and by that we include residential, commercial as well as institutional construction, read: power plant, schools, etc.), we can get our arms around a good portion of total steel spend.
Next, we look at automotive demand. For that we regularly report on monthly auto sales, but for those of you nerds out there who like more granular data, we love the automotive reports from the Consumer Metrics Institute, particularly the weekly index:
So, poring over metrics that tell the story for construction and automotive gets us about 66 percent of the way there. That leaves an additional 14 percent that we really need to pay attention to. The 12 percent of shipments that went into the machinery and equipment sectors get us nearly there. Here the drivers, or metrics, may appear a bit more elusive.
But this is where we pay close attention to the ISM national manufacturing indexes as well as the manufacturing indexes coming from the regional Federal Reserve Board offices, durable goods orders and capacity utilization.
Next week, we’ll identify and discuss a few additional metrics pertaining to the steel industry.