According to the American Institute for International Steel (AIIS), the US steel market did not see its usual seasonal spring season of strong demand and pricing. Instead inventory reductions and continued softness in pricing occurred while underlying demand retained its weakness from the final quarter of 2012.
AIIS continue to hold the view that some uncertainty continues to hold the economy back – such things as Obamacare costs and regulations, EPA and other regulations, etc. This uncertainty is poisonous to investment and hiring and continues to keep the US economy from strong expansion.
With the uncertainty, and having arrived at mid-year without the seasonal second quarter up market, the steel industry is now facing the normal seasonal summer slow-down.
While the steel market is in the midst of a positive run of price increases right now as distributors and consumers restock their depleted inventory, it is hard to see any reason to believe that underlying demand will allow this mini-cycle to grow into something more positive. In 2012, when underlying demand was stronger, it was still too weak to provide more than inventory- driven mini-cycles. The macroeconomic data unfortunately provide more evidence that the country is stuck in a slower gear than in 2012, and a long way away from a positive economic outlook.
Unemployment in June was unchanged from May, at 7.6%, with 195000 jobs created. This level of job creation is insufficient to reduce overall unemployment. Looking further inside the unemployment data, one sees that long-term unemployment was unchanged, as was the labour force participation rate.
The government put out its final analysis of the first quarter GDP. The inventory driven early indications were first, 2.5%, then 2.4% and now, 1.8%. The good news is that even with all this sobering news, the US economy is not in a recession. For the economy and the steel sector there is enough good news to prevent a recession.
The Institute for Supply Management’s PMI reading for June provides some good news. The manufacturing index improved from 49% in May to 50.9% in June, indicating that the manufacturing sector was growing again. Other ISM indices provided more good news, with new orders up, from 48.8% in May to 51.9% in June and production is also up. Manufacturing employment declined though, from 50.1 in May to 48.7 in June. The primary metals indices were among the sectors posting the good production related news.
Some of the reports that help underline the PMI’s positive report for June include improved retail sales – overall – and improvement in durable goods demand etc.
The good news for manufacturing in June undoubtedly is affected by the continuing good news for the auto sector. US auto sales in June rose 8% over June 2012 and were described as ‘best ever’. Estimates are that sales for the year will top 15 million units. The June sales improvement was driven by demand for heavy duty pick-up trucks, reflecting, according to one industry analyst, the improvement in the housing market. Both the US and Japanese auto manufacturers posted excellent results in June. The general view inside the auto industry is, according to GM’s chief economist Mustafa Mohatarem, “America’s families are better off than they were at the beginning of the year and they believe − with good justification – that the economic expansion is going to continue. Even moderate economic growth will be enough to keep the auto sales rate in the second half of the year at healthy levels around the mid-15 million-unit mark for 2013. The auto sector is benefitting from pent up demand from the recession years and new entrants into the market for autos. And with the focus currently on pick-up trucks, that is of course, good news for steel.
Steel demand for the important oil and gas drilling industry (oil country tubular goods) remains strong, with an inventor y overhang especially for the lower end welded OCTG products depressing prices due in large part to some foreign suppliers who over-shipped to the US market. The massive, but AIIS believe the unwarranted, trade case filing against nine such countries, treats all producers the same, even if they are high quality, responsible suppliers to the energy drilling industry. The good news, but maybe temporary, is that the cases will not have an immediate impact on the flat rolled or pipe and tube market. But if the decision at the US International Trade Commission (ITC) is in agreement with the domestic industry, the negative economic impact could be significant on the drilling industry. In addition, the cases will increase pricing for flat rolled and OCTG made in the USA and therefore raise costs to the drilling industry. The ITC decision will be made in mid-August. The US Commerce Department has not made a decision against a steel case filing since around 1982 and so there is little reason to hope that DOC will do so this time.