Market Update - December 2023

As 2023 ends, there is increased optimism that the U.S. Economy may achieve an elusive “soft Landing” during 2024, avoiding an economic recession:

• US ISM Manufacturing PMI came in at 46.70, unchanged from last month and down from 49.00 one year ago. The PMI has been in contraction territory for thirteen straight months.
• The University of Michigan's consumer sentiment for the US was revised higher to 69.7 in December from a preliminary of 69.4, hitting the highest reading in five months, amid substantial improvements in how consumers view the trajectory of inflation.
• The Fed Fund Rate held steady at 5.33% for the 4th month in a row. The Fed signaled for the first time that rate cuts will likely be on the table in 2024.
• GDP (Gross Domestic Product) vastly outpaced expectations in 2023. Estimates for 2024 are projected at 1.7%, with only about a 25% chance of recession.

• Holiday sales rose this year by 3.1% despite the level of inflation consumers felt over the course of 2023.

• The U.S. inflation rate came in at 3.1% for November, continuing its slow trend downward. The Core (Core = inflation minus food and energy) inflation rate held steady at 4.0% for November. Most analysts predict the inflation rate will fall about another percent point over the course of 2024 to about 2.1% - 2.3%.

• The US economy added 199,000 jobs in November 2023, surpassing the 150,000 added in October and exceeding market expectations of a 180,000 gain. However, it marked the second consecutive month with job additions below the average monthly gain of 240,000 observed over the past year, signaling a downward trend in the labor market. However, the number of job openings vs the number of unemployed remains above normal levels.
• The number of open construction jobs reached a record high in October as workforce shortages persist, the Associated General Contractors of America (AGC) reported. The AGC said the 457,000 open construction positions as of the end of October represented the highest October total in the 23-history of the series maintained by the government. (SMU)

Nippon Steel Corporation (NSC) and United States Steel Corporation (US Steel) today announced that they have entered into a definitive agreement pursuant to which NSC will acquire US Steel in an all-cash transaction at $55.00 per share, representing an equity value of approximately $14.1 billion plus the assumption of debt, for a total enterprise value of $14.9 billion. The $55.00 per share purchase price represents a 40% premium to US Steel’s closing stock price on December 15, 2023. The transaction has been unanimously approved by the Board of Directors of both NSC and US Steel and is expected to close in 2024. (Preston Publishing)

Following the announcement of the Nippon’s planned acquisition of USS:

• There were concerned parties quickly voicing their opinions on a large U.S. steel producer being purchased by a foreign company, using the term “a matter of national security” as a cautionary phrase.
• From the White House website, President Joe Biden “believes the purchase of this iconic American-owned company by a foreign entity—even one from a close ally—appears to deserve serious scrutiny in terms of its potential impact on national security and supply chain reliability.”

U.S. existing home sales are approaching 15-year lows mostly due to a combination of high mortgage rates for new buyers and existing homeowners with locked in low mortgage rates.

• USDA’s 2024 cost-of-production forecast for major field crops such as corn, soybeans, wheat, cotton, rice, and peanuts, among others, reveals that input costs are expected to remain elevated into the next growing season, at the third-highest level of all-time. While some input cost categories like fertilizer and chemical expenses are projected to decline from 2023 to 2024, other expenses such as seed costs, labor, machinery and equipment, taxes, and insurance are expected to increase. Declining crop prices and elevated input costs highlight potential headwinds the agriculture industry may face during 2024.
• The Cox Automotive Group is forecasting 2024 new-vehicle sales at about 15.6M, a slightly less than 2% gain from expected 2023 sales. Increased vehicle inventory and expected lower interest rates should end the “Sellers' Market” consumers have faced the past few years.
• Market Analysts are predicting Brent Crude oil pricing to average near its current price level during 2024. As of this writing Brent Crude stood at about $81 per barrel. Oil production continues at record levels with stable rig counts across the U.S.

• Policy experts and clean technology executives shared five predictions for 2024: Rising rural support for renewable energy, a fierce fight over clean hydrogen tax credits, electric vehicles (EVs) in the election spotlight, surging carbon utilization-related investment, and a real estate boom for electric vehicle charging infrastructure. (Forbes)
• The U.S. EV (Electric Vehicle) transition goal for 50% of sales by 2030 has a long way to go, including the infrastructure to support charging the EV. Electric Automobile 2023 sales are expected to be 10% of total autos sold this year. With so much investment moving into this new form of energy there continues to be significant investment in building the charging stations to meet a 2030 goal of 500,000 stations. We are projected at 159,661 stations for 2023. (WSJ)??

• Labor experts see more wins ahead in 2024 for U.S. unions after a year of attention-grabbing strikes and surging public support. Strikes by autoworkers, writers, actors and nurses and a threatened strike by UPS workers all led to significant wins in 2023. The biggest challenge labor faces is whether unions can finally begin to reverse the decline in union membership and in the percentage of workers in unions. Just 10% of workers are in unions, down from more than 20% during the 1980s. (The Guardian)
• “De-Risking” supply chains will continue to be a focus of many U.S. Companies during 2024 due to the ongoing conflicts in Europe and strain of U.S / China relations.
• There is continued lobbying for trade protection, with ongoing requests to maintain 232 and 301 tariffs particularly regarding Chinese metal imports to the U.S.

Hot Rolled Coil reaches $1100 end of December.

• Going into 2024 prices continue to have a wide range or increases. Spot market changes are >$.22/pound in total from the recent low point.?
• Hollow Structural Steel (HSS) had a series of four increases in recent months and buoyed by the strong HRC (Hot Rolled Coil) market are in effect.

Scrap continues to rise, up $80/ton for #1 Bush Scrap over November, to $510 for December.

• This also translates to higher scrap impact on bar and tubular products as scrap prices rise.
• Turkey is also reportedly an active scrap buyer again, after a pause due to several devastating earthquakes earlier this year.

• CRU contracts for the first quarter are back on the rise. With a 3-point program raising by $71/ton. We have continued to see the CRU prices trending up following this December 13th value for Q1.

• Steel production, according to AISI (American Iron and Steel Institute), is at 74.6%, which growing and showing more steel production.
• Lead times on HRC continue to be 5 – 8 weeks.

• Nickel closed 12/22 at $7.52/pound, and indications for the last week of this year show upward momentum. Opening with a $.17/pound increase on 12/27. Stockpiles of nickel in the LME are also reported to be 57,800 tonne. Shanghai opened trading on Monday and reports 129,550 y/t.
• Nickel surcharges on stainless welded pipe materials at $1.19 (304) and $1.79 (316) for January. Down respectively from $1.23 and 1.85 in December.

• A recent explosion at a nickel refinery in Indonesia has killed 19, with many more injured. The plant is currently not operating, and laborers are protesting for safer working conditions. This is not an isolated incident and could be a contributor to the recent price increase in LME. This incident may bring safety to the forefront if it was not already. (WSJ)

• The November average with the Midwest premium at $1.187/pound, December prices hover near the same level.

• In the U.S. there are currently five aluminum smelters, and one is considering closing down due to the high cost of energy to run (estimated $55M annually). Sources say it is not economically feasible to continue operation and while currently for sale, Magnitude 7 Metals in Missouri is considering shutting down if a buyer is not found soon. (Fast)

As we close out 2023 and implement our plans to delight our customers throughout 2024, we'd like to take a moment to thank you for your support and collaboration.

In 1907, Marmon/Keystone began as a single location in Pennsylvania growing to more than thirty North American locations, yet our roots in being product specialists within our core products of; pipe, tube and bar has withstood the test of time. Whether it be stainless, carbon, or aluminum we look forward to helping you execute your plan for growth in 2024.

Happy New Year! May 2024 exceed all your expectations.

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