Commodities demand rallies and prices stabilize, survey says
By Staff -- Purchasing, 7/15/1999
As U.S. manufacturing activity recovered in second quarter 1999, so too did demand for basic commodities. In June, Purchasing's current commodity demand indicators rose in 11 of 12 categories. What's more, only two categories were showing slightly negative demand in June (indicators were just below the neutral 50% threshold). By contrast, data from January 1999 shows 10 of 12 categories with current buying indexes below 50% and four with indexes below 40%. The demand picture for third quarter looks much the same. Indexes tracking three-month buying plans rose in 9 of 12 categories last month. Six of these indicators are now running closer to 60% than to 50%.On the price front, it appears that buyers anticipate neither inflation nor deflation in second half 1999. In seven of 12 categories tracked, buyers' three-month price expectations now stand very close to neutral (50% or thereabouts). A couple of categories are showing signs of modest inflation; a couple of indexes show very modest price erosion. In January, by contrast, six of 12 price-expectations indexes were in deep negative territory (below 45%); eight of 12 were below 50%. Here are the details by commodity category:
Steel. Party's over for steel buyers. Our current buying index for steel stood at 52% in June, its strongest level since June of 1998. The indicator bottomed out at 35% in February of this year. Index tracking three-month buying plans has been in positive territory for four consecutive months, boding well for second half. Buyers aren't ready to concede price increases just yet. Index tracking three-month price expectations stood very close to neutral (51%) last month. Still, this compares to a low of just 26% in January.
Nonferrous metals. Our index tracking current demand for nonferrous metals has recovered handsomely from a low of 36% in February to a slightly negative 49% in June. Last high for this index was 59% in July of 1997. Index tracking future buys has regained most of the ground lost during the manufacturing slump in late 1998, rising to 53% in June from a low of 38% last November. The discount well appears to have run dry in the second quarter as our index tracking buyers' price expectations has shot up to neutral (50%) from 29% as recently as March.
Fabricated metals. Demand for metals fabrications appears to be neither growing nor declining at this juncture. Our index tracking current buys stood a 51% in June. Ditto for the index tracking three-month buying plans. In the early months of 1999, both these indexes were running in high-30% territory as large numbers of buyers pulled back on their ordering. Absent inflation pressure in primary metals, buyers appear to be anticipating flat pricing for third quarter 1999. Index tracking three-month price expectations stood at 50% in June, up from a low of 43% in February.
Mechanical/electrical. After plotting a steep downward course between March 1998 and February 1999, our index tracking current buys has moved back into positive territory. Between February and June, the index has gained 18 points. From a low of 36% in December 1998, our index tracking three-month buying plans rose to 56% in June. With no pressure on the cost side, however, this demand rally is not likely to spark big price action, buyers say. Indeed, our index tracking three-month price expectations has been hovering in neutral territory since early in 1997.
Paper. Demand has been staging a steady rally since February of this year. Index tracking current buys rose to 54% in June from a low of 39% in February. Similarly, the index tracking three-month buying plans rose to a healthy 55% in June, from a low of 39% in November of last year. As paper producers have been relatively conservative about adding new capacity, this demand recovery is beginning to tell on prices. After popping up to 56% in May, the index tracking three-month price expectations stood at 52% in June, compared to a low of 37% in November of last year.
Plastic and rubber. Strong consumer spending has pulled up demand for plastic and rubber components. Index tracking current buys spiked to 64% in March. In June, the index stood at a strong 58%. Index following future buying plans has also been plotting a steady upward track from a low of 36% last December to 54% last month. Plastic resin producers have been agitating for (and winning a few) price increases and this is starting to exert upward emphasis on price expectations for processed plastics. Index tracking three-month price expectations rose to 51% in June from a low of 44% last November.
Packaging. Demand for corrugated and other packaging materials continues to stage a strong rally in the U.S. Our index tracking current buys rose to 59% in June (its highest level since June of 1997) from just 39% in February. Index tracking future buys (three months out) rose to 62% from a low of 40% last December. The market-pricing pendulum has clearly swung back to the producer's corner. After bottoming out at just 32% in January of this year, the index tracking three-month price expectations now stands at a lofty 69%.
Chemicals and resins. Our indexes tracking both current and future demand look choppy from month to month, but both appear to be tracking upward. Index tracking current buys stood at 59% in June, compared to a low of 36% in February. Index tracking three-month buying plans stood at 56% compared to a prior low of 38%. Nonetheless, this relative demand strength does not appear to be translating into higher prices--yet. Our index tracking three-month price expectations remained at a moderately negative 45% in June. Last low was 34% in January.
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