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Metals Outlook™ – Feb. – March 2014

Cover Story: Mother Nature Helps Push PMI Down To 51.3 Percent in January 2014
II. North American Perspective
III. U.S. Forging Industry
IV. Manufacturing Talk Radio – Interview with Brad Holcomb of ISM
V. Euro-Zone
VI. Asia Outlook
VII. South America
VIII. Economic Trends Across The Globe
IX. A Final Word

Publisher’s Statement

It looks like the deep freeze, snow and ice across the East slowed the economy across the country, with trucks unable to get out to manufacturers to deliver goods, and trucks delivering raw materials to manufacturers stuck at their origination points or terminals waiting for clear roads.

While everyone is expecting a better 2014, with MAPI predicting a 2.4 – 2.9 GDP for the year, it is only cautious optimism. So far, we haven’t seen industries across the spectrum reporting growth, and those that do only report sporadic or inconsistent stability in orders. So, manufacturing remains a tough slog through the mud as households rebuild their balance sheets before making any significant purchases.

The average age of cars on the road hit a record high of 11.4 years based on a review of 247 million cars and light trucks registered as of January 2013, as there has been little improvement. The housing market sees fits and starts as it tries to recover from the worst economy since the Great Recession, and both manufacturers and retailers operate with lean inventories. This means that metal, a common component in many manufactured products, remains slow in both the primary metals and fabricated metal producing industries.

Retailing is developing into another story for manufacturers as store and mall owners try to retool their existence in the face of ecommerce. Once laughed at as a digital fad, ecommerce has developed into a tsunami that is washing away the need for brick and mortar locations, and giving rise to distribution centers that are as much pick-pack-and-ship as they are midpoints for eventual retail delivery.

More to come as 2014 rolls out…

Lewis A Weiss
Comments to Publisher:

Cover Story: Mother Nature Helps Push PMI Down To 51.3 Percent in January 2014

ismEconomic activity in the manufacturing sector expanded in January and February for the eighth consecutive month, and the overall economy grew for the 56th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.

World crude steel production for the year 2013 was up 3.5 percent on 2012’s figure at 1,607 megatonnes (Mt), with growth coming from Asia and the Middle East and decreasing in all other regions compared to 2012.

U.S. crude steel production, at 87.0 Mt, is down 2 percent on the 2012 figure.  After growing by 7.8 percent in 2012 due to strong consumption activity, steel consumption in the U.S. is expected to grow by only 0.7 percent in 2013 to 96.9 Mt. The outlook for 2014 however is for a 3.0 percent increase aided by an improving global economy and surging automobile, energy and residential construction sectors in the U.S. For NAFTA as a whole, apparent steel consumption will grow by 0.2 and 3.2 percent in 2013 and 2014 respectively.

U.S. Auto Sales for the month of January – a normally soft month for auto sales – were buffeted about by the weather too, with the ‘Big 8’ showing sales as follows:

U.S. auto makers, GM, Ford, Chrysler     453,000 units Jan 2014; 479,000 units Jan 2013 – down 5.4 percent

Asia, Nissan, Toyota, Honda, Hyundai/Kia     409,000 units Jan 2014 ; 413,000 units Jan 2013 – down 1.0 percent

Volkswagen                  23,000 units Jan 2014;    29,000 units Jan 2013 – down 19 percent

However, both Nissan (11.8%) and Chrysler (8%) showed significant increases over January 2013’s figures.

The Seasonally Adjusted Annualized Rate (SAAR) stands at between 15.6 and 15.9 million vehicles.

The Dunn and Bradstreet indices looked encouraging for the month of January, with the Small Business Index contracting modestly, the U.S. Jobs Index showing 153,000 jobs added to the payroll in January, compared to 216,000 for December 2013 and the U.S. Business Health Index rising to 52.8 percent, the highest level since the index was started in December 2010. In fact the U.S. Business Health Index  improved almost 6 percent in January.

II.  North American Perspective

North-AmericaThe Institute of Supply Management PMI figure registered 51.3 percent in January, which represents a 5.3 percentage points drop from December’s seasonally adjusted reading of 56.5 percent. Mr. Brad Holcomb, Chair of the Institute of Supply Management Manufacturing Business Survey Committee, stated that ‘The past relationship between the PMI and the overall economy indicates that the PMI for January (51.3 percent) corresponds to a 2.7 percent increase in real GDP on an annualized basis.’  Of the eighteen manufacturing industries, eleven are reporting growth in January, including Primary Metals, Fabricated Metal products, Transportation Equipment and Machinery. Petroleum and Coal Products, Chemical Products and Paper Products showed a contraction during the month.

Comments from respondents: Primary Metals are busy, working 6 days, 24 hours per day, Fabricated Metal Products say poor weather impacted outbound and inbound shipments, Petroleum and Coal products say a good finish to 2013 but slow to date in 2014 due mostly to weather. Transportation Equipment says U.S. Government Aerospace Business is brisk, while Plastics and Rubber Products are suffering many late deliveries due to weather shutting down truck lines.

There seems to be little doubt that the weather had a significant negative impact on the overall January performance.

The following 5 components of the ISM’s PMI, New Orders, Production, Employment, Supplier Deliveries and Inventories are equally weighted and used to calculate the PMI number. A monthly PMI over 50.0 indicates an expanding economy; a number over 60.0 indicates strong manufacturing output, although overheating may occur.

The ISM New Orders Index for January was down by 13.2 percentage points to 51.2 percent, from December’s seasonally adjusted reading of 64.4 percent. This represents growth in new orders for the eighth consecutive month, but also the largest decline in the past four years. Eight industries reported growth in January, including Primary Metals, Machinery, Transportation Equipment and Chemical Products. Seven industries reported a decline, including Paper Products and Fabricated Metal Products.

The ISM Production Index showed a decrease of 6.9 percentage points in January, down from December’s seasonally adjusted reading of 61.7, to 54.8 percent.  The January reading indicates growth in production for the eighth consecutive month, but at a much slower rate than in December. Growth was noted in nine industries, including Primary Metals, Fabricated Metal Products, Machinery, Transportation equipment and Paper Products. Declines were noted in four industries, including Petroleum and Coal products and Chemical Products.

The ISM Employment Index for January, at 52.3 percent, is 3.5 percentage points down from December’s reading. This represents an increase in employment for the seventh consecutive month but at a slower rate than in November.  Growth in employment in January was reported in 10 industries, including Primary Metals, Fabricated Metal Products, Petroleum and Coal products, Transportation Equipment and Machinery. A decrease in employment was noted in Chemical Products and Paper Products.

The ISM Supplier Deliveries Index – to manufacturing organizations – slowed in January at a faster rate relative to December with the Supplier Deliveries Index registering 54.3 percent, or 0.6 percentage points higher than December’s seasonally adjusted reading of 53.7 percent. This represents a slowdown in deliveries to manufacturing organizations. Slower supplier deliveries were noted in ten industries in January, including Primary Metals, Fabricated Metal Products, Paper Products, Transportation Equipment, Machinery and Chemical Products. No industries reported faster deliveries in January.

The ISM Inventories Index, at 44 percent, is 3 percentage points lower than the 47 percent registered in December. This represents a contraction in inventories for the second consecutive month following two months of increases in raw material inventories. Five industries reported higher inventories in January, including Fabricated Metal Products. Lower inventories were reported in ten industries, including Machinery, Transportation Equipment, Petroleum and Coal Products, Paper Products and Chemical Products.

The following 5 components of the ISM’s PMI, Customer Inventories, Prices, Backlog of Orders, Exports and Imports are not used to calculate the PMI number but are tracked for trends in the marketplace.

1. The ISM Customers’ Inventories Index, at 44 percent for January, down 3.5 percentage points from December’s 47.5 reading, is considered to be too low. This index has been at 50 percent or less for 58 consecutive months, and a reading below 50 percent means customer inventories are too low.

Two industries, Fabricated Metal Products and Chemical Products reported too-high inventories for the month of January, with seven industries – including Primary Metals, Paper Products, Machinery and Transportation Equipment – reporting inventories too low.

2. The ISM Prices Index registered 60.5 percent in January, a 7 percent increase over the December reading. This is the sixth consecutive month that has seen raw materials price increases. In January 28 percent of respondents reported paying higher prices, 7 percent lower prices and 65 percent the same prices as in December. Of 18 industries, 12 reported paying higher prices in January, including Fabricated Metal Products, Machinery, Petroleum and Coal Products and Chemical Products. The only industry reporting paying lower prices in January was Paper Products.

3. The ISM Backlog of Orders Index decreased by 3.5 percentage points in January to 48 percent from December’s 51.5 percent reading. This is a contraction in order backlogs after three consecutive months of expanding order backlogs. Of the 83 percent of respondents who reported order backlogs, 19 percent reported greater bookings, 23 percent reduced bookings and 58 percent reported no change from December. Three industries – Primary Metals, Fabricated Metal Products and Machinery – reported increased backlogs in January, and ten industries, including Transportation Equipment, Chemical Products and Petroleum and Coal Products, reported a decrease.

4. The ISM New Export Orders Index at 54.5 percent is 0.5 percentage points lower than December’s 55 percent reading. The month’s reading represents growth in exports for the 14th consecutive month. Eight industries reported an increase in New Export Orders, including Fabricated Metal Products, Transportation Equipment, Machinery and Chemical Products. Two industries, including Paper Products, reported a decrease in New Export Orders.

5.  The ISM Imports Index fell to 53.5 percent in January from December’s 55 percent reading. This represents the 14th consecutive month that this index has been over 50 percent. Nine industries showed an increase in imports, including Fabricated Metal Products, Transportation Equipment and Machinery, with four industries, including Chemical Products, showing a decrease.

III.  U.S. Forging Industry

round-bar-1Alcoa and Russia’s VSMPO – AVISMA Corporation, the world’s largest manufacturer of titanium ingots and forged products, have agreed to get together to meet the growing worldwide demand from aircraft manufacturers for premium titanium and aluminum products. The joint venture will combine Alcoa’s expertise in the manufacture of value-added products with VSMPO – AVISMA’s global leadership in titanium production, to produce landing gear and forged wing components at Alcoa’s plant in Samara.

IV.  Manufacturing Talk Radio – Interview with Brad Holcomb of ISM

mfgtalkradio1steelforgeManufacturing Talk Radio ( was launched November 4th, 2013 as a bi-monthly live talk radio show broadcasting to listeners in the manufacturing industry from the C-Suite to the shop floor. Mr. Brad Holcomb chair of the Institute of Supply Management Manufacturing Business Survey Committee appeared on Manufacturing Talk Radio on February 6 2014 to discuss the January Purchasing Managers’ Index figures.

Mr. Holcomb commented on the January figures, noting significant decreases, particularly in the New Orders and Production Indices. January’s weather had a significant effect on the figures, slowing both businesses and transportation, with The South also being badly affected.

In spite of the lower figures it must be noted and stressed that there is still growth, even though this growth was not at the rates of the latter months of 2013.

Mr. Holcomb noted that ISM saw an article from an individual suggesting that the ISM indices were not correlating very well. His response to this was that the PMI and NMI (Non – Manufacturing Indices), surveys, that date from 1931, are based on simple questions regarding change, direction of change and rate of change. Above 50 percent means growth, below 50 percent means contraction. American Metals and Forge Group state that they take the PMI as a reliable business indicator.

Mr. Holcomb urged everyone to look, month by month, at economic indicators. Changes to some of the indicators are expected in February.  The news is in fact still pretty positive.

V. Euro-Zone

eurozoneMarkit’s Euro – Zone Composite Purchasing Managers’ Index (PMI) saw an increase to 52.9 in January from 52.1 in December, the highest reading since June 2011. The 18 – member bloc’s recovery was broad –based, with Germany leading the way and signs of stabilization in France, the zone’s number two economy. Manufacturing growth upstaged growth in the services sector. The services PMI rose to 51.6 from 51.0.

The Euro – zone produced 165.6 Mt of crude steel in 2013, down 1.8 percent on 2012’s figure.
The Financial Times of London recently polled fifteen steel analysts and stated that there will be a 2.4 percent year on year increase in steel production in the Euro – Zone in 2014 after six years of decline. This will be partly offset by a slowdown – to 4 percent – in China.

Arcelor Mittal, ThyseenKrupp and Tata Steel are all more upbeat about the steel situation for 2014 than they were in 2013.

VI. Asia Outlook

ChinaCrude steel production in Asia in 2013 was 1,080.9 megatonnes (Mt), a 6 percent increase on the 2012 figure. China’s share of this production was 779.0 Mt, a 7.5 percent increase on 2012, with Japan’s figure up 3.1 percent at 110.6 Mt. Top steel analysts predict a 4 percent year on year growth in Chinese steel production for 2014 compared with 6 percent in 2013. Growth rates for Chinese steel consumption are predicted to drop below the rest of the world for the first time since 2006.

China’s manufacturing PMI fell to 50.5 percent in January from December’s 51 percent. Chinese factory growth fell to a six-month low in January. In the final reading for January released on January 30, the HSBC/Markit PMI came in at 49.5, compared with 50.5 in December.  China’s services sector recorded its slowest growth pace in almost 2.1/2 years, with the January services PMI at 50.7 percent compared with December’s 50.5 percent.

VII. South America

south-americaSouth America’s crude steel production in 2013 was 46.9 Mt, a 0.8 percent drop from 2012’s figure, with Brazil’s production, at 34.2 Mt, down 1.9 percent on the corresponding 2012 figure. Brazil’s steel consumption is still forecast to grow by 3.8 percent in 2014.

Brazil’s iron ore exports drove revenues up to $3.2 billion in December, up 12.4 percent year on year, but on 31.8 million tons compared to 2012’s 32.3 million tons. Shipment tons are forecast to climb in the near future. It should be noted here that the price of iron ore fell by more than 8 percent in January.

VIII. Economic Trends Across The Globe

earthTHE ECONOMIST, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Industrial Production, Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at least the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month.

GDP           Industrial        Consumer prices    Unemployment
% increase    Production        % increase        percent                    % increase

United States    + 2.7 Q4    + 3.7 Dec        + 1.5 Dec        6.7 Dec

Canada        + 1.9 Q4    + 2.6 Dec        + 1.2 Dec        7.2 Dec

China        + 7.7 Q4    + 9.7 Dec        + 2.5 Dec        4.1 Q4

Japan        + 2.4 Q3    + 7.3 Dec        + 1.6 Dec        3.7 Dec

Britain        + 2.8 Q4    + 2.5 Dec        + 2.0 Dec        7.1 Oct

Euro area    –  0.3 Q3    + 3.0 Nov        + 0.7 Jan        12.0 Dec

France        + 0.2 Q3    + 1.5 Nov        + 0.7 Dec        10.8 Dec

Germany    + 0.6 Q3    + 3.5 Nov        + 1.3 Jan         6.8 Jan

Spain        –  0.1 Q4    + 0.2 Nov        + 0.3 Dec        25.8 Dec

India        + 4.8 Q3    –  2.1 Nov        + 9.9 Dec         9.9 2012

Brazil        + 2.2 Q3     –  2.3 Dec        + 5.9 Dec         4.3 Dec
Argentina    + 5.5 Q3    –  5.4 Dec        –             6.8 Q3

Mexico        + 1.3 Q3    –  1.4 Dec        + 4.0 Dec         4.8 Dec

IX. A Final Word

look-aheadThe figures for the month of January and February may look somewhat daunting, but there is little doubt that the extraordinary weather conditions were a significant factor. The final word might be left to some thoughts from the latest edition of The Economist magazine, which states that the ‘correction’ in global stock markets, following a very rosy 2013, amounts to over $3 trillion being wiped off global share prices since the beginning of January.

Any investor gloom, in spite of all that has happened recently, appears to be ‘overdone.’

The numbers don’t mean that the underlying U.S. recovery is stumbling. China’s economy is slowing down, but the odds on a sudden slump are low. Global growth is still expected to exceed last year’s pace.

As we have seen earlier in this newsletter, January’s U.S. figures, such as weak manufacturing orders and low car sales, may be attributed to the bad weather, and it’s possible – to quote The Economist – that the January figures might be taken with a truckload of salt.

In other words there are no reasons to expect long-term effects from the January performance, and even though the first few months of 2014 may be weaker, the current market pessimism could prove temporary.

Time, as the sage said, will tell.


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