The monthly Raw Steels MMI® registered a value of 55 in August, a decrease of 1.8% from 56 in July.
After Chinese steel prices slumped in July, they fell again in August but were at least more stable. Domestic prices remain low but seem to be stabilizing as well, resulting in our raw steels index dropping by less than 2%. That’s a moral victory for steel these days.
Paring the Decline
This was definitely a small decline compared to what we have seen from other industrial metals last month. Aluminum and copper hit 6-year lows. Not only was July a bad month for base metals, it was also bad for any commodity. Gold and oil prices fell 7% and 22%, respectively. With all these declines, the Thomson Reuters/Jefferies CRB Index hit new lows last month.
Apart from this macro commodity weakness, the fundamentals within the steel industry don’t look much better. Chinese demand seems to be getting worse. Construction data shows that demand from the sector has slowed during this first half. Also, the automotive sector is weakening with vehicle sales falling year-on-year for several months. Read more
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.
While domestic prices remained stable in June, Chinese steel prices plunged with its stock market. Also, the non-liquid London Metal Exchange steel billet contract fell sharply, weighing on our index.
The monthly Raw Steels MMI® registered a value of 56 in July, a decrease of 5.1% from 59 in June.
Chinese Market Reeling
Chinese steel prices are at their lowest level in more than 20 years. Chinese demand seems to be getting worse and industry analysts point out that the fall might not even be close to an end. This threatens the survival of smaller Chinese steelmakers, who are still reluctant to cut production in order to maintain cash flow and bank credit, while other small mills have already shut down.
Construction data shows that demand from the sector has slowed during this first half. Moreover, China’s demand for steel could take a further hit as construction eases over the summer.
Our construction metals index fell slightly this month despite strong US housing demand and generally good employment numbers.
The monthly Construction MMI® registered a value of 74 in July, a decrease of 1.3% from 75 in June.
The drop was mainly driven by hefty price hits to Chinese rebar and H-beam steel – yet the dip was spared from going lower by a more than 10% spike in the US shredded scrap price.
The construction sector neither lost nor gained jobs in June, according to the Bureau of Labor Statistics, and the Commerce Department said permits to build new homes surged 12% in April to an annual rate of 1.275 million, the highest since August 2007. Permits for apartment construction were the breakout leader, while permits for single-family homes, a much broader segment, still rose modestly.
Homebuilders Bullish
Confidence among US homebuilders, as measured by the National Association of Home Builders’ index, rose to its highest level in 9 months in June, so all signs point to a strong building season domestically.
Meanwhile, the developing world isn’t exactly holding its part of the construction spending deal up. A recent World Bank report detailed how China’s state-run banking sector is creating debt while not delivering on the construction stimulus promises Beijing has made. With Brazil still mired in recession and Russian construction limited to heavy pipeline work, the BRICS countries are not developing at the rates they earlier envisioned.
Oil & Gas Demand Up
Demand for oil and gas products such as steel tubes has rebounded domestically as the US passed Russia this month as the world’s top natural gas producer. Baker Hughes reported that the rig count for US oil producers increased for the first time this year, despite massive output by Saudi Arabia and other OPEC countries trying to undercut US producers’ prices. It was the first weekly increase in 30 weeks. Read more
The price forecast for US steel markets, much like me after contracting salmonella poisoning last week, has been quite lethargic lately.
An imminent pullout from the doldrums doesn’t look all too likely due to several major factors, which we’ll dive into shortly, and is supported by MetalMiner’s monthly Raw Steels MMI® clocking in with a value of 59 in June, a 1.7% drop from 60 in May.
The monthly Raw Steels MMI® – a price sub-index tracking a basket of finished steel and raw material prices from all corners of the globe – has been unhealthy for quite a while, and (after undergoing a slight recalibration at the end of 2014) has hit a new all-time low this month. Why?
The monthly Construction MMI® registered a value of 75 in June, an increase of 1.4% from 74 in May – not gangbusters construction activity by any stretch of the imagination, but perhaps the beginning of a break in the down-to-flat trend the market has been mired in since last year.
There are several good reasons to believe this is a turning point in the price of construction metals such as H-beams, steel rebar and shredded scrap. Reasons that go far beyond our belief that bad weather, higher break-even points for energy projects and a lack of willingness from lenders are what has held them back thus far.
Steel prices remain at their lowest levels. Almost every industrial metal price rose in April as a weaker dollar gave a boost to commodity markets. However, steel prices remained quiet, hanging at record lows.
The monthly raw steels MMI® registered a value of 60 in May, on par with April’s value.
Raw Materials Undercutting Scrap
Scrap prices are at their lowest levels and we don’t really see anything that could give prices significant momentum on the upside, at least until a bigger supply response is seen.
Unless we start seeing the dollar depreciate against other currencies, European scrap exports will keep gaining market share, leaving a supply excess for US steelmakers.
Cheaper to Produce
Moreover, although prices seem low, it’s still cheaper to make steel still using iron ore than scrap. Pig iron or billet could substitute some scrap as primary raw material in which case, US exporters would sell more in the domestic market, causing US scrap prices to keep falling lower.
Either way, steel demand remains weak, particularly in oil and gas tubular markets while the market remains oversupplied. It doesn’t seem likely that steel prices will rise significantly higher this year.
May Steel Prices
Last month, the steel billet 3-month price rose 3.3% on the LME to $315.00 per metric ton. US shredded scrap saw its price rise 0.8% to $250.00 per short ton.
The spot price of the US HRC futures contract closed the month at $450.00 per short ton after dropping 5.3%. Korean steel scrap prices fell 3.6% to $124.29 per metric ton. After rising the previous month, Chinese slab prices dropped 2.8% to $388.47 per metric ton. The US HRC futures contract 3-month price fell a slight 2.5% over the past month to $512.00 per short ton. The steel billet cash price ended the month on the LME at $300.00 per metric ton, down from $300.00.
Prices for Chinese billet remained constant this past month, holding at around $333.66 per metric ton. Chinese coking coal held pat last month at $174.08 per metric ton. Hovering around $491.59 per metric ton for the month, Korean pig iron remained unchanged.
The Raw Steels MMI® collects and weights 13 global steel and raw material price points to provide a unique view into global steel price trends over a 30-day period. For more information on the Raw Steels MMI®, how it’s calculated or how your company can use the index, please drop us a note at: info (at) agmetalminer (dot) com.
Outlays for US construction projects fell 0.6% in March to a seasonally adjusted annual rate of $967 billion, the US Commerce Department said last week. Commerce also revised February’s result to show almost no change.
Despite the lower spending, the monthly Construction MMI® registered a value of 74 in May, on par with April’s value. Flat is, apparently, the new up until construction starts and spending pick up some steam. The low prices have not yet incentivized developers enough, it would seem, to sign off on new projects or increase purchasing for anything but stockpiling, as credit is still hard to obtain and consumer demand for commercial and residential space remain tepid.
The energy sector, which accounted for much of last year’s construction gains, is still shrinking due to rebounding-but-still-low oil prices which are causing projects to get canceled. Oil, itself, has become too cheap to go to the expense of pulling it out of the ground for producers to turn a profit selling it. Read more
Today in MetalCrawler, the sleepy iron ore market was jolted to life. Is it a shift from the bearish trends we’ve seen lately? Only time will tell.
BHP Dials Back Mining Expansion
Iron ore advanced after BHP Billiton Ltd.curbed expansion plans and supplies from higher-cost mines dropped, easing concern that global output will outpace demand and feed a global glut. Miners’ shares jumped.
Ore with 62% content at Qingdao, China, rose 5.5% to $57.81 a metric ton early today, its highest since March 16. Benchmark iron ore is still 60% below the peak of $144.18 reached in August 2013. Visit our MetalMiner Indx for the latest prices.
Exports Fall For the Quarter
The Sydney Morning Herald’s Peter Ker writes that the week’s iron ore moves could have a major impact on markets if other producers follow BHP’s lead and constrain supply. Across Rio Tinto Group, Vale SA, Fortescue Metals Group, Arrium Limited, Mt. Gibson Iron and Grange Resources, exports were more than 19 million mt lower this quarter than in the December quarter, raising questions about why the iron ore price has fallen 28% during a period of supply weakness.
The American Institute of Architects‘ Architecture Billings Index came in positive, again, in March, but its relatively low increase again reflected the weak recovery in both design and construction. The March ABI score was 51.7, up from a mark of 50.4 in February.
“Business conditions at architecture firms generally are quite healthy across the country. However, billings at firms in the Northeast were set back with the severe weather conditions, and this weakness is apparent in the March figures,” said AIA Chief Economist Kermit Baker, Hon. AIA, PhD. “The multi-family residential market has seen its first occurrence of back-to-back negative months for the first time since 2011, while the institutional and commercial sectors are both on solid footing.”
Multi-Family Weakness
We have reported on the general weakness in multi-family residential and its effect on prices of construction materials such as structural steel and copper for much of the first quarter of 2015.
AIA prepared a video featuring Baker, recorded in a swanky Architect Magazine studio overlooking our nation’s capital, describing the macroeconomic issues facing the construction market, which include the strong dollar and the continuing shortage of skilled construction labor, in Q2 and the rest of the year. Read more
