The United States Geological Survey (USGS) recently reported production figures for a select group of commodities, all of which are tied directly to the construction sector in the US.
Most importantly for MetalMiner, it looks at US aluminum, iron ore and zinc production, but the significant rises in all three metal categories (and in the non-metal categories, such as cement, sand/gravel and crushed stone) seem to be inversely related to the trends in the US housing market.
Secondary aluminum production more specifically, aluminum alloys produced at secondary US smelters, minus primary aluminum consumed, according to the USGS) held steady from last quarter at 221,000 metric tons, but that represents a 35 percent increase from the same quarter in 2010. It’s been increasing the past three quarters because there’s been “increased availability of secondary material compared to primary material.
As the report mentions, the reason for higher quarterly production numbers is due in large part to the completion of previously planned projects rather than new starts, for example some of which were/are funded in part by the government’s American Reinvestment and Recovery Act. That’s why cement is up 11 percent in the third quarter from the second; sand and gravel is up 7 percent; and crushed stone up 14 percent.
Here’s the catch. The US housing market is still holed up in the deepest part of the lingering previous recession (as the Beaulieu Brothers have highlighted before).
Total construction spending during the first nine months of 2011 was 3.5 percent less than it was in the same period of 2010, according to US Census figures quoted in the report. Also, the Census Bureau and HUD (Housing and Urban Development) department reported that revised figures for privately owned housing starts for 2011 (up through September) were 1.5 percent fewer than the same period in 2010.
A Wall Street Journal report yesterday suggested that the minute gains in home construction confidence are almost nullified by existing home sales (down 10 percent so far this year) and foreclosure supply increases.
What does that mean for aluminum? The global market is still in oversupply, with LME inventories continuing to hold above 4.5 million tons and prices generally heading in a downward direction since mid-2011. This is likely to continue, according to analyst firms such as Harbor Aluminum. Harbor maintains that “Global end user aluminum demand has stalled and we shouldn’t expect any meaningful improvement for the balance of the year.
However, Harbor also says that their market balance indicator points to an underlying deficit, and that market fundamentals will come back strongly in 2012.