Housing starts in May totaled a seasonally annually adjusted rate of 1,290,000, down from 1,281,000 in April and 1,332,000 in May 2018.
Meanwhile, the May rate for units in buildings with five units or more reached 436,000.
As for building permits, privately owned housing units authorized in May reached a seasonally adjusted annual rate of 1,296,000, which marked a 0.3% increase from April’s 1,290,000 units but a 0.5% decline from May 2018’s 1,301,000 units.
Single‐family authorizations in May reached 815,000, up 3.7% from April’s 786,000. For buildings with five units or more, authorizations reached 442,000 in May.
Lastly, privately owned housing completions in May reached 1,213,00 units, marking a 9.5% decrease from April’s estimated 1,340,000 completions and a 2.8% decrease from May 2018’s 1,248,000 units.
Single‐family housing completions in May reached 890,000, down 5.0% from the revised April rate of 937,000. Meanwhile, the May rate for buildings with five or more units reached 319,000.
In other housing market news, the National Association of Realtors (NAR) reported May 30 that April pending home sales fell in that month after posting growth in March.
NAR’s Pending Home Sales Index, which is based on contract signings, dropped 1.5% in April, down to 104.3 from March’s 105.9. On a year-over year basis, the Pending Home Sales Index dropped 2.0%, marking the 16th consecutive month of annual decreases, according to NAR.
“Though the latest monthly figure shows a mild decline in contract signings, mortgage applications and consumer confidence have been steadily rising,” said Lawrence Yun, NAR’s chief economist. “It’s inevitable for sales to turn higher in a few months.
“Home price appreciation has been the strongest on the lower-end as inventory conditions have been consistently tight on homes priced under $250,000. Price conditions are soft on the upper-end, especially in high tax states like Connecticut, New York and Illinois.”
China’s current economic slowdown shows in the FXI, a large-cap market index. After showing unexpected strength early in the year and rising through the first part of April, performance turned around and the index began to fall once more.
After falling back to nearly start-of-year values, gains managed to hold at around 40 points. This seems to coincide roughly with press reports that stimulus measures from early in the year had begun to wane.
Crude Steel Production Remains High as Prices Weaken
According to the monthly Caixin report numbers, steel production totaled 85 million metric tons, apparently the highest monthly production total on record and about 5 million metric tons higher than the previous month.
Demand from the construction sector remains robust, but Wu Jingjing, a deputy director for the China Iron and Steel Association (CISA), warned demand growth from the sector will wane during the second half of the year. CISA maintains its 2019 forecast for 1-2% demand growth. However, demand from the automobile, household appliances and energy sectors looks weaker.
CISA reported a 1% steel price drop in May and an iron ore price increase of 7%. Higher iron ore prices hurt operational profitability, with CISA’s members reporting a 19.38% year-on-year decrease in profits for the January to April period (despite an 11% increase in sales revenue).
Consolidation of the Steel Industry is Underway
According to Reuters, the Chinese government is seeking to consolidate its steel industry to some extent by 2020 in order to boost the industry’s efficiency.
If government plans to constrain production through consolidation succeed, this would support higher prices for the industry. U.S. prices would also benefit, given that China’s prices tend to lead U.S. prices by about one month.
China Baowu Steel Group, the second-largest steel producer worldwide in 2018, announced its intent to acquire a majority stake in Magang Group Holding Co Ltd, of which Maanshan Iron & Steel Co Ltd, the 16th-largest producer, is a listed entity.
Baowu Steel Group produced 67.43 million metric tons in 2018, according to the World Steel Association, while Maanshan produced 19.71 million tons in 2018.
Raw Material Inputs Continue to Face Supply Issues
Iron ore prices remain high as supplies remain tight. According to customs data, imports recovered to some extent during May, rising by 37% to 83.75 million tons. Overall, shipments dropped by 11% compared with May 2018. Imports for the first five months of the year dropped by 5.2% compared with the same period in 2018.
According to the Xinhua News Agency, as reported by Reuters, all coke plants that do not meet special emissions standards slated to go into effect on Oct. 1 in Shanxi — China’s top coke-producing region — will be closed.
Additionally, the government is seeking to reduce capacity for 2019 by 10 million tons. The region failed to comply with similar capacity reduction goals in the recent past.
Perhaps keeping in mind its ever-increasing popularity around the globe, Indian steel company Jindal Stainless has announced it would soon be manufacturing stainless steel e-rickshaws, the Business Standard reported.
The steel major showed off a prototype at the 9th Electric Vehicles Expo, which drew enthusiastic crowds. About 600,000 e-rickshaws are being sold every year in India, and Jindal Stainless feels it could easily corner 25% of that multimillion-dollar market with its new product. Furthermore, the market is estimated to grow at 16% CAGR over the next five years, the Business Standard reported.
Jindal officials said there was demand from India’s first- and second-tier cities. One of them was Lucknow, the capital of India’s largest province, Uttar Pradesh. They expect an annual demand of 13,000 tons of steel from the sector by 2021.
Jindal claims to have manufactured India’s first-ever stainless steel e-rickshaw, claiming it was far superior in chassis performance as compared to carbon steel e-rickshaws.
The lifespan of the carbon steel vehicles is low as compared to the stainless steel counterpart. Safety, too, is better in the latter because of its high strength-to-weight ratio, improved crash resistance and corrosion prevention. Stainless steel components lead to 14-15% reduction in overall body weight, according to the Business Standard, resulting in higher battery efficiency. Not only that, a stainless steel “auto” will fetch a higher value when scrapped, as compared to the carbon steel counterpart.
As we reported last month, miner Glencorereached an agreement with Umicore in which it would supply the latter with cobalt from its operations in the Democratic Republic of the Congo (DRC).
Umicore is a global materials technology and recycling group based in Brussels.
“Umicore has assessed each operation as fully compliant with its sustainable procurement framework for cobalt which excludes artisanally mined cobalt from its supply chain, as well as any form of child labor,” Glencore said in a prepared statement. “The cobalt units will be shipped to Umicore’s cobalt refineries globally, including the Kokkola refinery in Finland once the ongoing acquisition process is complete.”
The agreement comes on the heels of a May 23 announcement by Umicore that it had moved to acquire Freeport Cobalt’s cobalt refining and cathode precursor activities in Kokkola, Finland.
Plate Prices Fall
As MetalMiner’s Belinda Fuller noted in the Raw Steels MMI report, plate prices last month joined other forms of steel (HRC, CRC and HDG) in their overall downward trend.
“Even plate prices dropped this month after stubbornly sticking at around $1,000/st for a lengthy stretch after rising longer term,” she wrote. “This month the price dropped by nearly 7%, from $962/st at the start of the month to $902/st in early June.”
Grain-Oriented Electrical Steel (GOES)
The GOES MMI dropped three points this month, down to a June reading of 172.
The GOES price fell 1.8% month over month to $2,368/mt as of June 1.
In other GOES news, the TEX Report reported Japanese mills are entering negotiations regarding 2H 2019 shipments of grain-oriented electrical steel sheet to the U.S. and Europe. In addition, TEX Report said China’s Baosteel raised its price for domestic grain-oriented electrical steel sheet, adding Beijing’s stimulus measures could lead to increased demand for grain-oriented electrical steel sheet in power grid improvements.
Several prices in the index dropped significantly this month. Most prices declined more moderately, in the 1% to 3% range, with a couple of prices holding steady.
Source: MetalMiner analysis of FastMarkets
The LME nickel price declined 2.5% between May and June. During the first week of June, LME nickel prices dropped further but still managed to hold above $11,600/mt as of press time.
According to the International Stainless Steel Form (ISSF), stainless steel melt shop production increased by 5.4% to 50.7 million metric tons in 2018, up from 48.1 million metric tons in 2017. The organization forecasts continued growth in 2019.
In 2018, China accounted for 52.6% of global stainless steel production, according to ISSF. The U.S., meanwhile, accounted for 5.5% of global production. In absolute terms, the United States produced approximately 2.8 million tons of stainless steel last year, including slab and ingots.
Nickel pig iron production from China and Indonesia will increase in 2019, as it did during 2017 and 2018, which will contribute to lower prices, according to ISSF.
As reported by Reuters, the nickel market deficit narrowed during the first two months of the year, dropping to 5,700 metric tons from 24,400 metric tons during the same period of 2018.
However, LME and SHFE nickel stocks remain at historically low levels.
Domestic Stainless Steel Market
Source: MetalMiner data from MetalMiner IndX(™)
Stainless steel surcharges gave up some of their recent gains but still remain higher than at the start of the year.
Prices also remain higher from a longer-term perspective when compared with 2016 lows of around $0.40 per pound for 316/316L-Coil and $0.32 per pound for 304/304L-Coil. Nickel ore prices remain lower, causing the recent price weakness.
What This Means for Industrial Buyers
Like other steel prices, stainless steel prices showed weakness this month, following from weaker global demand combined with lower input prices.
This month, Chinese non-ferrous FeCr lumps decreased by 12.5% to $1,644/mt, the largest drop in the index.
The 316 Allegheny Ludlum stainless surcharge fell from $0.95/pound to $0.89/pound this month, a 6.3% decrease. The 304 Allegheny Ludlum Surcharge dropped back to $0.61/pound from $0.68/pound last month, a 7.8% decrease.
Chinese primary nickel decreased by 4.9% to $14,057/mt.
China 304 CR coil dropped 3.5% to $2,158/mt.
The remaining price declines ranged between 1.0% and 3.0%.
The exceptions were Indian primary nickel, up by 0.9% to $12.52/kilogram, and Chinese non-ferrous FeMo lumps, with flat pricing this month at $17,956/mt.
Last year, the U.S. left rare earths off a wide-ranging list of Chinese imports to be targeted by tariffs (as part of the U.S.’s Section 301 probe), as the U.S. — and the rest of the world — depends on China for rare earths.
Last month, the U.S. raised tariffs on $200 billion in imports from China and China responded with retaliatory tariffs. On the heels of the tit-for-tat and President Xi Jinping’s recent visit to a rare earth magnet facility, some commentators are wondering if China could put the squeeze on the rare earths market.
“China is rattling the saber ever so softly to say that it may be more exposed to general trade on a balance of payments position – China exports more to the U.S. than the U.S. exports to China — but the U.S. (and the rest of the Western world, as it happens) is uniquely exposed to China’s control of not just rare earth elements, but the whole supply chain,” Burns wrote. “That supply chain includes everything from mining through refining to manufacturing of myriad components used in high-tech applications including from electric vehicles, cellphones, laptops, missiles and fighter jets.”
According to CNBC, China’s exports of rare earths dropped in May to 3,639.5 metric tons, down from 4,329 metric tons in April.
The rare earths market is notorious for its volatility; as such, it remains to be seen if the drop in exports is a calculated move or a one-off blip. As trade talks between the U.S. and China continue to take shape, market watchers will want to keep an eye on China’s export levels.
Malaysia PM: ‘We’ll Have to Renew’ Lynas License
On May 30, Malaysian Prime Minister Mahathir Mohamad told reporters, with respect to the ongoing discussions regarding Australian rare earths miner Lynas Corp’s license to operate in the country, “We think we’ll have to renew the license,” according to a report in the Straits Times.
Lynas, the largest rare earths miner outside of China, has battled regulatory challenges in Malaysia related to waste disposal. Disposal of two forms of waste at the miner’s Malaysian facility has been the focus of the ongoing saga, as the miner’s license to operate in the country expires in September.
The miner has previously said it would not be able to comply with the government’s conditions vis-a-vis waste disposal in the required time frame.
“We welcome the Prime Minister’s comments acknowledging the importance of the continuation of the Lynas operations in Malaysia,” Lynas said in a prepared statement May 31. “We will update the market as we receive further clarification from the Malaysian government.”
Actual Metal Prices and Trends
Chinese yttrium fell 2.4% month over month to $32.58/kilogram as of June 1. Terbium oxide rose 1.3% to $529.26/kilogram. Neodymium oxide skyrocketed this past month, jumping 27.7% to $50,681.30/mt.
This month the Aluminum Monthly Metals Index (MMI) decreased, with weakness coming from all the prices tracked globally. The index value dropped back two points to 86, back to February levels after holding at 88 for three months.
LME aluminum prices occasionally spiked in May. Prices showed some sideways price movement, yet continued to trend down overall. In early June, the closing price hit a new low for the year at $1,773/mt.
Source: MetalMiner analysis of FastMarkets
Source: MetalMiner analysis of FastMarkets
Looking at the past six months on the chart above, it’s a little easier to see that prices recently also dropped below January 2019 levels, signaling further price weakness could be on the horizon should relevant industries continue to slow at major growth engine points.
Aluminum Supply Deficit Forecast for 2019
According to a recent investor presentation prepared by Alcoa, the primary aluminum deficit will be between 1.5 million and 1.9 million metric tons. The Chinese market will remain supplied or slightly in surplus at 0.2 million mt of overage, with the deficit projected for the world ex-China.
Global inventory days continue to trend downward overall. After topping out at 119 days in 2009, they now hold at a projected 59 days of global consumption for the 2019 (down from a 70-day average last year).
Source: MetalMiner analysis of FastMarkets data
In the chart above we can see LME-held aluminum stocks have oscillated just above 1 million metric tons for roughly a year and a half. LME worldwide stocks measured at roughly 1.1 million metric tons in early June. These levels are drastically lower than stocks held between 2009-2015.
Automotive Innovation Continues to Tighten Aluminum Supplies
The automotive pull on aluminum supplies will continue to impact aluminum prices over the longer term. This impact will continue to increase as more automotive companies innovate with the metal and push for lighter overall vehicle weight.
Novelis, the producer of aluminum automotive body sheet for the popular Toyota RAV4 and NIO ES6, recently announced its first aluminum sheet battery enclosure solution, which it calls “a more sustainable mobility solution in battery electric vehicles, a market that is expected to more than triple globally by 2025,” it said in a recent company statement.
An industry chief from Constellium Bowling Green, the company’s automotive unit, cites the automotive market as the biggest growth opportunity for the aluminum industry in years. The company expects demand for automotive aluminum to hit 1.4 million tons annually by 2025.
The company also features aluminum battery enclosures for vehicles and makes crash management systems, side impact beams, decorative trims and emblems in aluminum, according to the company’s website. According to the company balance sheet, revenue from sales of packaging rolled and automotive rolled products increased by 12% in Q1 2019 compared with Q1 2018.
Braidy Industries‘ Atlas Mill, the first greenfield aluminum rolling mill in the U.S. in 37 years, according to the company, will open around 2021. According to its company chief, the next five years will be the best in the past five decades. Russian aluminum giant Rusal plans to take ownership of 40% of the project, but the deal presently faces congressional scrutiny.
On the other hand, some automotive lines may never end up making the shift over to aluminum if presented with other options, given the costs of white body production line conversion.
Nippon Steel, of Japan, understands the business threat and opportunity, responding recently by developing a new lightweight car body of steel with a 30% weight reduction.
In Japan, benchmark aluminum premiums increased to $115-$120 mt for Q3. According to press reports, the 10-14% increase follow tighter supply.
Chinese Aluminum Prices
SHFE aluminum prices continued to maintain upward momentum overall so far this year.
Source: MetalMiner analysis of Fastmarkets
Constrained capacity growth could support prices.
On the other hand, some capacity expansion plans for primary ingot are being reported independently by region, according to press reports. This includes the Guangxi Zhuang Autonomous Region’s plan to boost production of aluminum to 4.8 million metric tons by 2025, from the present annual amount of around 2.25 million metric tons in 2018 and an estimated 2.6 million tons for 2019, according to its Ministry of Industry and Information Technology.
Shortage of scrap material also constrains China’s domestic production due to China’s tightening of its scrap import policy.
U.S. Aluminum Premiums
The U.S. Midwest Premium finally dropped slightly but still rounded to $0.19/lb in early June.
The higher premium indicates supply shortfalls remain.
As indicated by a recent Reuters report, suppliers may be holding the premium higher to cover the 10% import costs on materials. With Canadian and Mexican tariffs now removed, we might expect some drop in the premium.
Source: MetalMiner data from MetalMiner IndX(™)
However, looking at the chart above, the premium already increased a great deal in the year prior to the implementation of the tariffs, with the premium then sticking at that higher level.
U.S. imports of aluminum totaled $24.3 billion dollars, a drastic increase of 41.7% since 2014. Import growth leveled off after 2017, with domestic production already largely shut down due to poor margins.
What This Means for Industrial Buyers
With industrial metal markets still down, including aluminum, on an uncertain economic outlook, and as the U.S. Midwest Premium remains high, buying organizations need to watch the market carefully.
Chinese aluminum prices dropped in the 1.7% to 3% range. Chinese aluminum scrap dropped 1.7% to $1,868/mt, while the primary cash price dropped 3% to $2,042/mt. Billet and bar prices decreased by 2.5% to $2,113/mt and $2,210/mt, respectively.
European prices showed the largest decrease in the index, with commercial 1050 sheet prices down 4.6% to $2,497/mt, while 5083 plate dropped 4.4% to $2,953/mt.
India’s primary cash price dropped 3.7% to $2.07/kilogram.
Other price drops in the index registered at less than 2%, including the LME primary 3-month aluminum price hitting $1789/mt following last month’s larger drop of 5%.
U.S. construction spending in April came in flat compared to March, but dropped 1.2% compared to April 2018, the U.S. Census Bureau reported.
April spending reached $1,298.5 billion, compared with $1,299.2 billion in March and $1,314.7 billion in April 2018.
Private construction spending came in at a seasonally adjusted annual rate of $954.0 billion, down 1.7% from the revised March estimate of $970.4 billion.
Under the umbrella of private construction, residential construction spending was at a seasonally adjusted annual rate of $499.3 billion in April, down 0.6% from the revised March estimate of $502.4 billion. Nonresidential construction was $454.7 billion in April, down 2.9% from the revised March estimate of $468.0 billion.
Meanwhile, public construction spending was $344.6 billion, up 4.8% from the revised March estimate of $328.7 billion. Educational construction reached $80.0 billion, up 2.1% from the revised March estimate of $78.3 billion. Highway construction hit $114.3 billion, up 6.8% from the revised March estimate of $107.0 billion.
ABI: Billings Bounce Back
This month’s Architecture Billings Index (ABI), released monthly by the American Institute of Architects (AIA), shows billings bounced back in April after a down March.
The April ABI checked in at 50.5, up from 47.8 the previous month, when billings declined for the first time in over two years. An ABI value greater than 50 indicates billings growth.
“However, while this turnaround is welcome news, billings growth generally remains sluggish, with only a slightly larger share of firms reporting increasing firm billings than reporting decreasing billings,” the AIA said. “But inquiries into new projects and the value of new signed design contracts both strengthened in April, as firms remain fairly optimistic about future work.”
With an ABI value of 51.6, the South was the only region to post billings growth in April; the West, Midwest and Northeast all posted sub-50 values.
This month’s ABI survey asked company leaders about their clients’ reaction to economic uncertainty (particularly on the heels of the March billings slide).
The responses indicate anxiety over said uncertainty is not insignificant, as 52% of respondents said “nervousness about the economic outlook was affecting their clients either modestly, seriously, or a great deal.” Furthermore, of the firms reporting at least moderate nervousness regarding the economic outlook, 62% said their clients have reacted by slowing or stalling projects.
Waiting for Infrastructure
Even in this age of political polarization, infrastructure is an issue that draws broad support, regardless of political affiliation. After all, who doesn’t want safe roads and bridges?
However, general sentiment doesn’t always translate into action, particularly when passed through the filter of politics.
Last month, President Donald Trump told Democratic leaders to approve the pending United States-Mexico-Canada Agreement (USMCA) before working on an infrastructure bill, Reuters reported.
The USMCA, which would succeed the 1994 North American Free Trade Agreement (NAFTA), must be ratified by the legislatures of Canada, Mexico and the U.S. before it can go into effect.
Trump last month lifted the Section 232 steel and aluminum tariffs on imports of the metals from Mexico and Canada, but a recent threat to impose a 5% tariff on all imports from Mexico beginning June 10 has ramped up tensions.
Actual Metal Prices and Trends
Chinese rebar steel fell 4.6% month over month to $579.21/mt as of June 1. Chinese H-beam steel fell 2.4% to $563.29/mt.
U.S. shredded scrap steel fell 8.1% to $295/st.
European aluminum sheet fell 4.6% to $2,496.57/mt. Chinese aluminum bar fell 2.5% to $2,209.70/mt.
“On a year-over-year basis we have increased our average transaction prices by more than $3,000 a vehicle and still managed some notable sales increases,” said Reid Bigland, Fiat Chrysler’s U.S. head of sales. “In its first full month on sale, our all new Jeep Gladiator pickup truck delivered more than 2,500 vehicle sales, our Ram pickup truck sales soared 33 percent and the Jeep Grand Cherokee delivered its best May sales ever.”
Meanwhile, Honda’s U.S. sales fell 4.9% year over year, down to 145,532 vehicles, with Honda sales down 5.9% and Acura sales up 5.7%.
Toyota sales jumped 3.2% year over year to 222,174 vehicles in May. Toyota hybrid sales jumped 44.7%, while Lexus hybrid sales were up 40.1%.
Ford Motor Co., which announces sales on a quarterly basis, last month announced it would cut 7,000 jobs, amounting to 10% of its salaried workforce, CNN reported.
General Motors, meanwhile, which also reports on a quarterly basis, announced last month it is in talks with Workhorse Group Inc. to sell the automaker’s plant in Lordstown, Ohio.
“We remain committed to growing manufacturing jobs in the U.S., including in Ohio, and we see this development as a potential win-win for everyone,” GM CEO and Chairman Mary Barra said in a release. “Workhorse has innovative technologies that could help preserve Lordstown’s more than 50-year tradition of vehicle assembly work.”
According to a forecast by J.D. Power and LMC Automotive, May new-vehicle retail sales were projected to fall 3.1% from May 2018.
“May is one of the highest volume months of the year and its performance typically indicates how the year will play out,” said Thomas King, senior vice president of the data and analytics division at J.D. Power. “The expected sales decline in May, coupled with weak sales year-to-date has left the industry with rising inventories of unsold vehicles. Manufacturers are responding with larger discounts to take advantage of the Memorial Day weekend which is one of the busiest car-buying periods of the year.”
Xinhua: China Auto Sales Projected to be Flat in 2019
Meanwhile, state-run news agency Xinhua reported auto sales in China are expected to finish approximately level with last year.
According to Xinhua, auto sales in China are forecast to hit 28.1 million units in 2019. Citing a report jointly released by the China Association of Automobile Manufacturers and other parties, passenger vehicles sales are forecast to reach 23.7 million units, similar to last year.