Metals and energy commodities, such as oil and liquid natural gas, continue to fall on international indexes mostly due to the weak economy and lax demand in China, the world’s second-largest economy. The recent volatility in Chinese stock markets shows no sign of abating.
The private Caixin/Markit manufacturing purchasing managers’ index (PMI) for China dropped to 47.8 in July from 49.4 in the previous month.
Chinese Economy Still Falling
That is worse than the preliminary reading of 48.2 and is the fifth consecutive month of contraction in the sector. With falling demand in such a large market, it is difficult to foresee a turnaround in the metals that make up our index. The Construction MMI® registered a value of 72 in August, a decrease of 2.7% from 74 in July.
While construction activity is strong in the US and Europe, emerging markets and China continue to drag down prices and overproduction of materials for export is actually exacerbating oversupply.
Try Not to Catch Falling Knives
The oversupply in aluminum, in particular, is worsening. Alcoa, Inc., recently raised its forecast for the global aluminum surplus, expecting a surplus of 760,000 metric tons this year which is almost double Alcoa’s previous forecast.
It remains a good time to be a buyer with double-digit declines in fuel surcharges and lower prices across the board for all construction products including rebar and H beams tracked in the index. With the price of oil back below $50 a barrel we are likely to continue to see falling US fuel surcharges and lower cost transportation and shipping charges.
Construction purchasing in the US is now a waiting game as estimators and project executives questions become some version of “how long do I wait before buying” to achieve a truly low price before markets bottom out, rather than how quickly to purchase to avoid non-existent price spikes.
Actual Construction Metals Prices
The weekly US Gulf Coast bar fuel surcharge fell 12.8% over the past month to $0.27 per mile. After falling 11.2%, the weekly US Midwest bar fuel surcharge finished the month at $0.27 per mile. Chinese H-beam steel prices fell 7.0% to $342.58 per metric ton. After rising the previous month, US shredded scrap prices dropped 6.8% to $261.00 per short ton. The weekly US Rocky Mountain bar fuel surcharge fell 5.8% over the past month to $0.29 per mile. A 3.1% decline for Chinese aluminum bar left the price at CNY 12,840 ($2,065) per metric ton. European 1050 aluminum fell 0.4% to $2,853 per metric ton.
The price of Chinese rebar rose 4.7% to $357.06 per metric ton after falling the previous month.
At a price of $77.20 per dry metric ton, the Chinese low price of 62% Australian iron ore fines did not budge the entire month.
The Construction MMI® collects and weights 9 metal price points used within the construction industry to provide a unique view into construction industry price trends over a 30-day period. For more information on the Construction MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.