Automotive MMI: HDG Prices Lead the Way, But Will Auto Sales Continue Trucking into 2018?

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The Automotive MMI, tracking metals and raw materials used within the automotive industry, jumped 4.3% to a value of 97 for May.

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Here’s What Happened

  • The U.S. HDG steel price tracked by the MetalMiner IndX jumped 11% to an 8-month high for December, last reaching its current level in April 2017. U.S. shredded scrap prices also spiked to an 8-month high, driving this sub-index higher.
  • Our Auto MMI has had a stalwart Q4, with sustained values in the 90s. In fact, the last time this sub-index reached 97 was in September 2014.

What’s Going On in the Background?

  • Auto sales in the U.S. were helped along by automaker and dealer incentives for consumers, with the return of the holiday shopping season — especially Black Friday, according to an AP report.
  • Edmunds.com predicted “November sales will rise 3.5 percent over last year to 1.4 million vehicles,” according to that report.
  • The historical picture, however, shows that while car sales are in a longer-term downtrend, light truck sales are in a longer-term uptrend, according to the WSJ.
  • As for the Chinese auto market, vehicle sales increased by 2% year-over-year in October, growing for the sixth consecutive month, according to MetalMiner’s monthly metal buying outlook report. New-energy vehicle sales also boomed this year, driven by government incentives to support the EV sector.

What Metal Buyers Should Look Out For

  • The state of how sales within the automotive market are structured could offer some hints as to what the future holds. Brandon Mason, a director at PwC’s automotive practice, told Reuters that, “a worrying trend for the industry was a rising number of deep subprime loans. He said subprime levels are at just over 20 percent of originations, against more than 30 percent prior to the Great Recession, but recent increases remain a concern.”
  • HDG prices, however, may be the biggest elephant in the room — not to mention often the single-biggest driver within our market basket of metals used in the auto industry. According to MetalMiner’s analysis in the monthly outlook, while 2016 saw a sizable increase in HDG prices, they’ve begun to level off to the point that real price strength is not yet evident. With slowing Chinese prices and pending circumvention cases, HDG prices may reverse this month’s uptrend just as quickly as it began.

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