AIIS Steel News-October 2013

The paucity of government data due to the government shutdown has handicapped this month's Market Update

WASHINGTON (Scrap Monster): The paucity of government data due to the government shutdown has handicapped this month’s Market Update, but in truth, little appears to have changed from September’s update. However, some of our sources suggest a slight weakening of the steel market, or flat at best. Thankfully there are some optimists to point to though. The ISM index report for all manufacturing on October 1 came in at 56.2 percent for September, an increase of .5 percent from August. Comments related to steel inside the report included:

• “Overall business is flat to down across the board.' (Machinery)

• “Housing continues to improve, resulting in improved conditions for our industry.'

• 'Steady increase in work this month.' (Primary Metals)

• 'Overall business is picking up.' (Transportation Equipment)

• 'Outlook remains strong with housing market and customer orders.'(Electrical Equipment, Appliances & Components)

Some of the other indices in the ISM system showed mixed results. New orders decreased by 2.7 percent in September while production and employment increased. The employment index posted its highest report for the year. McGraw Hill data on the all-important construction market reported that total construction starts showed a slight improvement in August – in a late September report. Total starts increased by 2 percent over July with residential construction posting a 4 percent improvement. According to the chief economist of the American Institute of Architects, “As business conditions at architecture firms have improved eleven out of the past twelve months, it is fair to say that the design professions are in a recovery mode.” Clearly, architects’ business conditions are a leading indicator for the non-residential construction market, not just the residential. While the non-residential construction market remains weak compared to historical conditions, this is another indication that better times are on the horizon. Steel Dynamics recently reported that it anticipates a better third quarter than the second due to improvements in shipments of products consumed in the non-residential steel market. In a turnaround from the July report, in early September the government reported that the metals industry, all primary metals, posted an increase in employment for August.

The bottom line for ISM’s manufacturing indices in September, as one analyst commented, Manufacturing has decent momentum going into the fourth quarter.Other data on important steel consuming sectors continue to show moderate improvement across many markets, for example durable goods posted a small gain in August after a large decline in July, machinery likewise also posted a small improvement in the month. The healthy auto sector continues to chug along,posting strong results, as discussed below. Overall, retail sales also increased slightly in August, even without the strong results from the auto sector. With some two thirds of GDP accounted for in consumer spending, even small improvements are encouraging.

The monthly good news report from the auto sector continues this month. Wards Auto reported that sales in September were up compared to the same month prior year for the 37th month in a row. The third quarter posted what Ward’s called, “a long-time high.” September 2013 compared to September 2012 sales were up only 4.1 percent, even with two fewer selling days in 2013. It was of course noted that sales in September did decline from August though. Expectations are that the auto sector will close the year at 15.6 million units, clearly a strong showing. What does all this mean for the steel sector at this time? Domestic producers continue to announce price increases for flat rolled products. Prior summertime price increases mostly took, with some softening in demand at the end of the summer. But moving into the fourth quarter, the mills are announcing more increases. Whether these price hikes will stick is open to question at this point, the jury is out, but inventories are described as lean by most commentators.

After the very slow start to 2013, the improved results during the usually weaker summertime was good news and the mills are currently benefitting from improved market conditions. As always, as the market improves, conditions for imports also improve. The usual lag time for imports is in play at this point; we expect arrivals to improve in October and November reflecting the price increases and optimism from the summer. Should the recent price increases hold that would bode well for imports as well going forward. While it is hard to see a strong movement in the steel market at this point with non-residential construction still far below healthy levels, the slow slogging improvement continues. As to the Federal Government shutdown, the general view is that a short shutdown will have little impact but that the longer it continues, the greater the impact. General views are often wrong and at this point, the private sector appears to be little affected by the shutdown. See Customs Corner for more information on the practical side of things for steel importers and exporters, Customs processing, etc.

Steel shorts

Steel Vs Aluminum 1

According to an article in AMM, according to members of the Aluminum Extruders Council, aluminum extruders believe that smaller, lighter weight cars will benefit them at the expense of steel. They believe a surge in demand is coming that will increase their weight per car to 38 to 39 pounds per car from 13.7 last year, with additional growth from the truck sector. But the aluminum industry is not sanguine about their prospects; they know that steel is targeting their market share with new lighter, stronger steel products. But, they claim, their products are available today while the steel industry’s products are still several years away from the marketplace.

Steel Vs Aluminum 2

In an AMM response to the above article, the president of the Steel Market Development Institute cited Advanced-High Strength Steels (AHSS) as the competitive answer to the aluminum industry boast. He noted that AHSS products are in production and in the market now and helping auto manufacturers meet new federally mandated requirements for fuel economy. In its longstanding program working with automakers to develop new steels, the goal is to reduce weight, costs and do so without requiring substantial stamping plant or body shop investment, which changing to different materials would require. Steel News would note that, far from the normal perspective about steel and the auto sector, steel still makes up about the same percentage of weight of the average car it has for a long time. While cars have gotten on average lighter and smaller, steel is still the material of choice for the auto sector – no doubt where we stand.

Steel Vs Aluminum 3

At about the same time the above two articles were in play, as reported in another AMM article the aluminum industry released a study it sponsored claiming that aluminum cars and light trucks impacted the environment less than vehicles made from steel over the lifetime of the vehicle. The study was done by the Oak Ridge National Laboratory. It was noted that in the production phase, aluminum uses more energy than steel, but the reduced weight in the car from aluminum over time offset the advantages of steel.

The Steel Market Development Institute, naturally, wanted to respond to the lifecycle study comparing the two materials. It turns out that the so-called “study” was nothing more than a slide presentation with no backup. Oops. But it seems that not only is the battle for market shares between the two materials a heated one, so is the PR battle.

NAFTA Expansion-Autos

Honda Motor Company’s Mexican subsidiary reported that it would be breaking ground on a new $470 million transmission plant. The new facility will be located next to an existing assembly operation. With sales of Honda’s in Mexico doubling since 2011, additional capacity is needed.

Courtesy: American Institute for International Steel, Inc

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