Buyer seller “Psychological warfare” has been attributed to rapid shifts in steel prices by WSD many times in the past. The most recent situation, whereby the USA price of hot-rolled band surged to ~$1,630 per tonne in April from a low of about $1,000 per tonne in February, and now a shift back toward $1,000 per tonne (or possibly lower) in the months ahead, is yet another example of the impact of psychology.
A key reason for this most recent shift from “upside” pricing momentum to the downside unfolding at present, among others, appears to be tied to the broad perception of inevitable economic “calamity” likely to beset the USA. The conditions in the U.S. economy are no doubt complex at the moment, with countervailing forces at play:
• Economic positives include:
➢ The U.S. Job market remains remarkably strong with the reported unemployment rate at 3.6%. Despite some recent uptick in jobless claims, statistics indicate that individuals accepting jobless benefits are at a decade-long low.
➢ Despite a decline in Q1 GDP (1.5% contraction on an annualized basis), growth is expected to turn positive again in the second quarter. Economists have been hesitant to classify the economy as having officially entered a “recession.” A large part of the decline in the economic growth during the first quarter was a function of increased imports (a negative factor in the GDP calculation).
➢ Accumulated savings in the United States remains strong; therefore, despite growing inflation, U.S. consumer spending remains high, although some recent indicators suggest that consumers may be drawing down some of their savings as inflationary pressure mounts. Sales of durable goods, such as automobiles and appliances, have remained at high levels. Durable goods orders were up 0.4% in April and 0.6% in March.
➢ At least for the time being, an argument could be made that USA consumers should be in a strong position given growing wages, improved home values, and strong debt positions by historical standards.
However, headwinds are rapidly emerging that could put the U.S. economy in peril:
➢ Inflation is having both a psychological and real impact on economic growth. Despite all the factors benefiting U.S. consumers, and the overall current strong health of the U.S. economy, inflation and supply chain disruptions continue to impact U.S. consumers and businesses.
➢ As supply chain issues continue to plague global automakers, automotive sales continue to lag 2021 levels. January to April 2022 cumulative auto sales were 4.6 million units versus 5.46 million units in 2021. By comparison, monthly auto sales averaged 1.42 million units in 2019 – roughly 23% higher than the monthly average year-to-date 2022.
➢ Signs are emerging that concern of an overall cooling in the U.S. housing market is increasingly valid – this is on the heels of seemingly “exponential” rates of price appreciation seen during the last two years. As mortgage rates have ratcheted up over the last 6 months (from as low as ~2.5% in late-2021 to a current figure of about 5.5% for a 30-year loan), there has been a reported decline in home sales.
➢ Amazon has recently announced it is reducing the rate of warehouse construction, signaling a potential slowdown in overall activity in this steadily booming construction segment.
• If history is any guide in the current environment, even minor recessions over the last 40 years have had a significant impact on U.S. steel production and demand. Consider the following (peak/trough figures annualized):
➢ 1980: 121 million Mar 1980 to 69 million July 1980
➢ 1981: 122 million May 1981 to 41 million January 1983
➢ 1990: 90 million August 1990 to 71 million February 1991
➢ 2001: 109 million May 2000 to 68 million December 2001
➢ 2007: 100 million May 2008 to 46 million May 2009
This report includes forward-looking statements that are based on current expectations about future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict. Although we believe that the expectations reflected in our forward-looking statements are reasonable, they can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including among other things, changes in prices, shifts in demand, variations in supply, movements in international currency, developments in technology, actions by governments and/or other factors.
The information contained in this report is based upon or derived from sources that are believed to be reliable; however, no representation is made that such information is accurate or complete in all material respects, and reliance upon such information as the basis for taking any action is neither authorized nor warranted. WSD does not solicit, and avoids receiving, non - public material information from its clients and contacts in the course of its business. The information that we publish in our reports and communicate to our clients is not based on material non-public information.
The officers, directors, employees or stockholders of World Steel Dynamics Inc. do not directly or indirectly hold securities of, or that are related to, one or more of the companies that are referred to herein. World Steel Dynamics Inc. may act as a consultant to, and/or sell its subscription services to, one or more of the companies mentioned in this report.
Copyright © 2022 by World Steel Dynamics Inc. all rights reserved