The American Institute for International Steel (AIIS) concludes that on balance in early September, the US economy is not strong, and in general, despite some positives in the auto sector, not improving. The stubbornly high levels of unemployment clearly are a drag on growth. For steel, there is little to see in the medium term but a continuation of the stable, but weak demand.
The all-important construction market in July fell by 0.9%, but remains 9.3% above the July 2011 level according to the Census Bureau. One very positive economic indicator for the economy in July was the Census Bureau report that US residential building permits reached a four-year high -- even as actual housing starts in the month declined from June. The building permits were at 812000 units, a positive for the future. This compares to actual housing starts in July of 746000. An improving housing market is a leading economic indicator and a positive sign for the economy going forward if the trend continues.
The Purchasing Managers’ Index for manufacturing posted another decline in August, to 49.6%, reflecting another contraction in manufacturing. This is the third negative reading in a row and the lowest for the index since July 2009. Bad enough news, but the new orders’ index came in worse, at 47%. Growing inventories in the report also provide additional concerns. One positive, the primary metals sector was among those that reported some positive growth in orders in the month.
The undeniably steel-critical auto sector posted another great sales month in August, up 20% over July and finishing as the best month since the ‘cash for clunkers’ monthly totals in August of 2009. Honda and Volkswagen topped the list, with increases of 60 and 46% respectively. The annual rate of sales has now returned to a much more positive sounding 14.53 million units of cars and light trucks.
A final piece of bad news is the reduction in consumer borrowing, which declined by $3.28bn in July over June. Obviously, this reflects the reported rise in consumer pessimism.
For steel importers, it is a mixed bag at this point. With the union agreements apparently in hand for USS and Arcelor Mittal, concerns about steel shortages are off the table and those few – according to most reports we have seen – who built inventory out of concern of a work stoppage, will surely retreat from the marketplace for the time being. Although RG Steel is no longer operating, there remains the view in many quarters that supply is too high to support further prices increases. The more recent improvement in pricing during the summer – an unusual positive seasonal trend -- is also being called into question by some who expect prices to soften because they believe the supply is ample and -- along with a recent retreat in the price of scrap -- there will be increased pressure on prices again especially in flat rolled where there was more of a run-up late in the summer. Domestic mills generally have short lead times currently.
Therefore, the uncertainty of the economic environment understandably has caused caution amongst the purchasing community and trading community, but some of our trader members report finding ways to turn this into a modest positive by reemphasizing such tried and true trading industry fundamentals as financing, logistics and inventory risk management programs for their customers. This often compliments the domestic/import balance for consumers who are clearly in the driver’s seat in a buyers’ market at this time. Further this helps eliminate the pricing cycles’ uncertainty for all players in the marketplace. Finally, there are those who believe that with the election now less than 2 months in the future and the outcome uncertain, some companies will be extra cautious in their plans until the future is more knowable. Taking a chance on imports arriving in December/January could be viewed as too risky.