Metals:''It ain't good out there''

As we and others have reported, global steel production hit 1,329.7 million metric tons last year, a decrease of 1.2% compared with 2007 and the first decline we’ve seen in a decade.

Goldman Sachs Group’ near-term outlook remains conservative following the preceding seven years of rapid global growth that they credited to the BRIC nations (Brazil, Russia, India and China) and “cheap credit.” Now, however, the positive secular changes enjoyed earlier may now, they contend, “reverse in the coming two years” due to lower global steel demand. They again look to the BRIC nations for growth resumption, post-recession. CitiGroup has a similar view of 2009. That group’s forecast calls for global steel demand to fall 9% to around the 1.21 billion metric-ton level.

Any positive news? Well, for the U.S. market, a lot of attention has focused on inventories that are placed at multi-decade lows by most steel analysts. Consequently, the guess is for firmer list prices, sooner than later, based on the conviction that supply is lower than the demand is weak. There’s that and the fact that steel imports finished last year lower by some 4% at 28.9 million metric tons, and 30% less than the record set back in 2006.

Morgan Stanley analysts also see some light. Their view calls for the steel destocking cycle to end in the first half of this year, allowing operating rates, and prices, to “stabilize” and “modestly“ recover by year-end. For investors, they also see some buying opportunities ahead following “pain in the next couple of quarters.” The company is forecasting a steel demand decline of 6.8% this year along with their base case $600/ton average price for hot-rolled sheet in coil (HRC). Their bull and bear case forecasts are $650 and $540/ton, respectively.

And before we forget, the Administration’s stimulus package includes a meager $90 billion for highway, rail and other infrastructure projects. It also has a “Buy America” steel provision that requires public works projects funded by the bill to use only U.S. made iron and steel. Hummmmm…

This week, Steel Business Briefing’s latest has the HRC market at $538/net ton, up $5 from a week ago and up $12 from their mid-December low of $526. World Steel Dynamics has its HRC reference price at $521/ton, with Platts at $520-$530. (Editor’s Note: Purchasingdata.com this morning published a January price average of $509).

On the scrap front, the talk this week as we all look to February is a “sideways at best” market for HMS (heavy melt scrap) mill deliveries, but with a decidedly negative undertone, suggesting that prices could very well be lower. For reference, Scrap Price Bulletin has its current composite price for No.1 HMS at $202.83/gross ton delivered, with shredded scrap figured at $253.17. World Steel Dynamics’ SteelBenchmarker, meanwhile, is showing HMS at $199 this week, and bushelings at $247. Export orders are a helping to underpin a hopeful sentiment but offshore orders are said to be just inconsistent enough to cast doubt on next month’s price direction. In sum, there’s a lot of uncertainty amongst the buyers and sellers and those in between.

In nonferrous markets, London Metal Exchange (LME) per-pound cash prices are:

With the above in mind, the January 2009 Reuters survey of some 57 (brave, drug-crazed) analysts came out this week with the following 2009 and 2010 mean forecasts:

These latest projections make the forecasts offered in Scrap magazine’s January/February 2009 issue look almost outright bullish! For copper we had 2009 at $1.85; aluminum closer to $0.90; nickel at $5.52; lead at 71¢ and zinc trailing the lot figured below the lead forecast. As observed by Barclays Capital, though: “The market is currently engulfed in bearish sentiment, manifested on a daily basis in economic data that underscore the severity of the current economic malaise.” In other words, it ain’t good out there.

Moving on…

Aluminum leads the LME complex in terms of largest price change (-10%) since year-end 2008, while copper leads in the change in inventories since December 31st (+44%.)

Not a lot is going on in the trenches; secondary smelters, for example, are finding sales but at, say, 59¢/lb delivered, they’re few and far between. As for aluminum scrap flows, supply is there. The latest we’re hearing for old sheet and cast is the low 30s/lb range, with painted siding at 34¢ cents and MLC’s at 38¢s delivered. Spreads have narrowed. On the UBC front, the latest indication we have on cans is that it’s an all but dead market in the low to mid-40 cents per pound, picked up.

“Dead” also describes the domestic market for copper scrap, domestic quotes are all over the place so we’ll avoid them for now. The more interesting story, however, are the downright aggressive offers coming out of the south of China in a market that’s described as virtually void of copper scrap, crazy numbers.

Latest SLI (starting, lighting, ignition) battery shipments: through 11-months of 2008, North American replacement shipments totaled 89.991 million units, up 1.3% over comparable ‘07 data. Original equipment (OE) shipments, however, were lower by 13% at 16.255 million units. No surprise there.