U.S. economic analysis week of September 6, 2005
The effects of Hurricane Katrina will limit the supply of raw materials and may elevate prices to as much as $80 per ton.
This increase would be in addition to the 20 percent hike that leading steelmakers
US Steel and
Nucor implemented last week. The rise would likely affect products such as
galvanized steel and cold rolled coils but could also affect
rebar as well.
Such an increase would have a detrimental influence on all types of steel end products from automobiles, to home appliances, to garage doors. This would invariably impact
US consumers and businesses in the long run and leaves more questions than answers about what will happen to the economy, particularly durable goods.
Further worries were voiced over the shutdown of a major supplier of liquid hydrogen in Louisiana. More than half the industrys supply of liquid hydrogen comes from Louisiana-based Air Products and Chemicals Inc. Initial estimates are that the company may need three to six months to bring its plant back to full capacity.
Consequently, supply side fears, concerns over damage to the Port of New Orleans, and possible transportation disruptions sent steel shares higher.
AK Steel Holding Corp. rose 7.1% to $9.15; Steel Technologies Inc. gained 3.8% to $24.54; United States Steel Corp. was higher by 2.2% to $44.71; and
Nucor Corp. increased 1.6% to $58.55.
For the week, the
US steel index has risen over one percent to just under 167.
Meanwhile, domestic steel
production saw a slight rise last week compared to the previous week.
Production for the week ended September 3 was 1.98 million net tons, a week-on-week rise of 0.6 percent from 1.97 mnt. Year-to-date
production was 69.6 mnt, a year-on-year decline of approximately six percent from 74 mnt.
Prices at the pump continue to trend downward. The American Automobile Association reports that gasoline prices fell to $3.018 from $3.042. Prices have fallen successively day-by-day since hitting a record high of $3.057 on Monday.
Still, experts warn drivers not to get complacent. The minor decline seen recently will be modest and temporary and the
US Department of Energy is warning consumers to prepare for a long, hard winter.
American homeowners heating bills could rise 30 to 70 percent this winter and electric bills could jump as much as 17 percent.
Mortgage rates remained flat compared to the previous week. Long-term mortgage rates are at their lowest level since the middle of July, 5.77 percent. Comparatively, a year ago, 30-year mortgage rates averaged 5.83 percent.
15-year mortgage rates averaged 5.30 percent, down from 5.32 percent a week earlier.
Katrina reconstruction efforts will also tax the housing industry and may add two to three percent onto home prices but the low mortgage rates will most likely help even those costs out.
Jobless claims fell to 319000 for the week ended September 3 from an unrevised 320000 from the prior week. That number is sure to rise, however, in the wake of a surge of jobless claims stemming from Katrina-displaced workers.
Lastly, the stock markets have managed quite well this week posting gains in light of overall shrinking costs of oil. Despite rising slightly over $65 today, oil has still dropped more than 12 percent since reaching a record high of $70.85 last week.
The real test will come later next week when most analysts expect Wall Street to reach the upper end of this current
trading range. Moreover, we will see a wealth of major economic reports such as consumer and producer prices, trade deficit, and retail sales released. Market health and direction will largely depend on what those reports say and will give everyone some idea of where the economy stands, at least before the real impact of Katrina begins to take effect.