Market Update - October 2023

The Purchasing Managers Index (PMI) came in at 49.0 for September, reflecting an 11th consecutive month of U.S. manufacturing sector contraction.

Consumer resilience persisted in the latest retail sales report, which showed spending at stores, online and at restaurants rose a stronger-than-expected 0.7% in September from a month earlier. (WSJ)

Although consumer spending remains strong, consumer confidence for October came in at 63.0, its lowest reading in 5 months. This may be a precursor of lower future consumer spending habits.

The U.S. Personal Savings Rate came in at 3.9% in August, marking a third month of decline. This number is well below the long-term average of 8.9%, according to the U.S. Bureau of Economic Analysis.

The U.S. inflation rate held steady at 3.7% for September. Core inflation (which excludes volatile items such as food & energy) fell to 4.1% in September, the lowest reading since September of 2021.

The unemployment rate also held steady at 3.8% for September. The number of job openings vs the number of unemployed came in at 1.51, slowly trending lower but still higher than its historical average.

The WallStreet Journal recently published an informative article regarding the longer-term aspects of U.S. Employment:

• By the end of 2028, even the youngest living baby boomers will have reached the average retirement age of approximately 64.
• The U.S. birthrate—the number of births per 1,000 people—has been falling for decades, and now is about half of what it was in the 1960s.
• The overall employment participation rate is expected to drop to 60.4% by 2032, according to the Labor Department, mainly because of baby boomer retirements. This would be the lowest workforce participation rate since the late 1960’s.

A thoughtful immigration program can help address our U.S labor shortage situation. The U.S. workforce currently has about 30M foreign born workers (about 18% of the total U.S. workforce). Given the above upcoming U.S. workforce demographics, many economists believe the immigrant workforce needs to grow north of 25% of the total U.S. workforce to avoid stalling long term U.S. GDP growth. Peak immigration in the early 1900’s helped spawn the U.S. Industrial revolution – we’ll likely need another immigration influx to help support our next economic revolution.

Sales of previously owned homes in 2023 are expected to dwindle to a rate not seen since at least 2011(4.1M), when the U.S. population was smaller and the country was still recovering from one of the greatest housing crises ever, according to many economist forecasts. The current mortgage rate stands at 7.57%, levels not seen since the late 2000’s.

U.S. auto-industry sales continued to rise in the third quarter, with automakers and buyers largely unfazed by higher interest rates and the impact of a continuing UAW (United Auto Workers) strike. Automakers sold an estimated 3.9 million new cars and trucks during the quarter, up about 17% over the year-earlier period, according to J.D. Power, a data and analytics firm. (WSJ)

Cleveland-Cliffs announced October 23 that despite the UAW strike they achieved a higher total of shipping tons in Q3 compared to the prior two quarters of 2023. Cleveland Cliffs shipped 4.1 million tons, up slightly from 4.0 in previous quarters. A major reason is the impact of the Big 3 strike shipments were off set with shipments to other auto companies growing in market share participation.

It has been widely reported that the U.S. Strategic Petroleum Reserves are at a dangerously low level. With pricing per barrel currently in the $80-$90 range, the initiative to replace these barrels has not gotten traction due to the significant cost. In latest news the Biden administration has eased Venezuela’s sanctions on oil, which were in place since 2019. This change allows OPEC member Venezuela to export “without limit” to selected countries for the next six months. It is not expected this will significantly impact the constrained global supply.

Oil Rigs have been trending down month over month, but recent weeks have had a slight increase. Overall, from a year ago there are 147 fewer rigs active.

As industry continues to build increasing clean energy and carbon neutral metals sources have complained about permitting and regulatory hurdles being difficult to overcome to go forward with large scale projects. A recent report of a 1300-mile Heartland Greenway pipeline project aimed at annually capturing 15 million tons of carbon from ethanol production plants across the Midwest has been canceled by Navigator CO2 Ventures. The reason for the cancellation is due to the unpredictable regulatory process.

The UAW (United Auto Workers) has been gradually increasing the strikes since the work stoppages began after the sides failed to reach tentative agreements by Sept 14. The United Auto Workers union believes there is “more to be won” in ongoing contract negotiations, despite record contract offers from General Motors, Ford Motor and Stellantis that now include 23% hourly pay increases during the terms of the four and a half-year deal. (CNBC)

The Palestinian militant group Hamas launched an unprecedented assault on Israel on 7 October, with hundreds of gunmen infiltrating communities near the Gaza Strip. At least 1,400 Israelis were killed, while the Israeli military says 203 soldiers and civilians, including women and children, were taken to Gaza as hostages. More than 4,000 Palestinians in Gaza have been killed in air and artillery strikes carried out by the Israeli military in response. Israeli troops are also massing along the Gaza boundary and Palestinians are bracing themselves for a major ground operation. Israel has at the same time imposed a total blockade on the territory, denying it food, fuel, and other essentials. US Treasury Secretary Janet Yellen said on 10/18 that is conflict between Israel and Hamas is unlikely to have a significant impact on the global economy. (BBC)

Unifor began a strike in Canada on October 22nd, after failing to come to an agreement on wages. This affects the St Lawrence Seaway connecting the Great Lakes to get shipments to the Atlantic Ocean. This also affects the Erie Canal affecting the Northeastern U.S.

Hot Rolled Coil pricing resumed upward momentum, currently at $38.50/cwt as of the 24th of October. For reference, this reflects an increase of $6.25/cwt from the late September 2023 low point.

Spot market increases announced:

• In late September Cleveland Cliffs announced a price increase on HR coil products.
• Followed by another announcement this month for a new minimum level of $800/ton.

HSS tube mills announced a $50/ton increase on Hollow Structural Sections the week of 10/16.

Domestic mills have been taking their semi-annual maintenance shutdowns, and more are expected to continue in November.

Buyers that were sidelined waiting on further pricing declines are coming back to the table as pricing is expected to increase. What is leading to this sentiment on pricing?

• Controlled supply through shutdowns and adjustments affected by the UAW strike is now causing longer lead times.
• After months with 3-to-6-week lead times, they are now averaging 4 to 7 weeks.
• Prices are rising on spot market quotes.
• Market participants believe once this UAW agreement is agreed upon there will be further upward pricing momentum.
• Demand for steel remains steady.

Nucor’s West Virginia site hosted a record breaking, groundbreaking ceremony on October 20th. By record breaking we refer to the 550 shovels used to break the Guinness World Record. The project is reported as the largest manufacturing investment in state history and is expected to employ 800. The project is expected to take two years to complete and produce 3-million tons of sheet.

Scrap remains flat compared to September coming in at $400/ton again for October.

Mill lead times are increasing adding a minimum of one week to production lead times.

Pipe and tubing shipments are up as reported through September 2023 at 12.4 million tons, an increase of 8.4% over same period 2022.

Domestic steel capacity production as of mid-October is at 73.8%.

Nickel prices from 10/24 closed at $8.28/pound, according to LME (London Metal Exchange).

• LME nickel inventory has increased 8% from our report a month ago, currently at 44,900 tonne.
• Will prices dip below $18,000/tonne? It would be the first time since late 2021 for prices to do so.

U.S. stainless scrap prices are currently holding steady.

The stainless-steel market is expected to grow approximately 3% in North America in 2024. (SMR)

On October 4, U.S. producers of aluminum extrusions filed petitions with the U.S. Department of Commerce and U.S. International Trade Commission asking for antidumping duties on imports from fourteen countries. They are also seeking countervailing duties on same products from China, Indonesia, Mexico, and Turkey.

Demand of aluminum in U.S. and Canada for first half of 2023 shows contraction of 4.8% compared to 2022. Shipments from domestic producers combined with imports totaled 15,365 million pounds.

E.U. (European Union) and U.S. continue discussions on extending 232 agreements. The US Department of Commerce’s Bureau of Industry and Security (BIS) is proposing amendments to Section232 that, if enacted, would change certain aspects of the tariff exclusion process for steel and aluminum imports. About $10B in exports could be impacted if an agreement is not reached.

Danieli Automation (DA), has embarked on a pioneering journey to create the “intelligent plant” of tomorrow.

At the heart of their innovation lies a sophisticated AI framework. It was designed to extract data generated during the steel manufacturing process. This framework seamlessly incorporates cloud computing, enabling the development of scalable AI models. A standout feature of this system is its capability to autonomously operate a plant while collecting data.

The practical applications of this AI infrastructure by (DA) extend across the entire steel supply chain.

Predicting Continuous Casting Clogging:

• (DA) employs a gradient boosting model to forecast the probability of clogging in continuous casting.
• Through an analysis of more than 21,000 heats, this model identifies the key process variables influencing clogging.
• By doing so, it equips plant operators with early warnings, allowing them to proactively address potential issues.

Monitoring Vacuum Degasser Temperature:

• Leveraging machine learning, this application integrates pyrometer readings with a temperature estimation model.
• The result is real-time information on the steel bath temperature during the degassing process.

Detecting Surface Defects:

• Employing AI, (DA) has enabled the accurate detection, location, and classification of surface defects.
• This process works on both rolled and casted steel products.
• This is achieved through cloud-based deep learning models trained on extensive image datasets.
• The consequence is a real-time quality control system that facilitates root cause analysis.

AI is no longer an abstract in steel manufacturing; it’s a crucial reality as the industry becomes more complex. Embracing AI offers benefits like automation, higher productivity, and faster, and data-driven decision-making.

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