Davis Index – Daily metal prices, scrap prices & global metal market

Last year at this time we were all anticipating a good 2020. Our budgets and plans were optimistic. And then COVID-19 happened and everything changed. As the year ends, we all hope and pray for the end of the virus and for 2021 budgets to be on target.

Even though vaccines will be distributed soon, we are still in the midst of the pandemic. The US accounts for 4pc of the world’s population and 19pc of the global virus cases, and both cases and deaths continue mounting daily at a staggering pace. Everyone is tired of wearing masks and social distancing, and more people are taking risks with protecting themselves and their families. Cases will continue surging if people don’t take precautions during the upcoming Christmas, Hanukkah, and New Year holidays. I would rather miss family celebrations this year to be able to celebrate with my family next year. As hard as it is for all of us, hospitals and healthcare workers are bearing the brunt of this crisis.

The 1918 pandemic killed 675,000 Americans and 50 million people worldwide. That is staggering considering the population was significantly smaller at the time. Once the pandemic passed, society moved into the Roaring Twenties. In many respects, the current pandemic could be creating a similar situation as we face pent up demand in getting back to public sports events, entertainment, and travel. Hopefully, enough people will get the vaccine to make it safe for us to participate in the activities we love.

By the time you read this, we may have another spending bill that Federal Reserve Chair Jerome Powell says is critical for the economy to keep going. So many people have been hurt by this crisis through no fault of their own. Even with unemployment dropping to below 7pc, 10 million people who were working at the beginning of the year are yet without work.

I was surprised to learn that US manufacturing costs now compare favorably to a couple of other manufacturing powerhouses. China’s costs now are just 5pc lower than the US, and Mexico is 15pc less. The Boston Consulting Group reported this data for 2019, based on the total cost of labor, energy, and other inputs. With the recent supply chain disruptions, reshoring will occur at a faster pace. Also, foreign direct investments in the US have grown this year and are higher than in China.

The manufacturing economic news continues to be good. Non-defense capital goods new orders, excluding aircraft, which is a proxy for business investment, rose by 2.3pc in October. New orders for durable goods, excluding transportation, were also up 1.3pc in October and very close to the pre-pandemic high in February. Car sales dropped but still finished November at 15.5 million annual sales level and inventories remain low. Home sales are at their best volume since 2005, fueled by low interest rates and inventories. Employment is still recovering but at a slower pace. The PMI manufacturing index was down 1.8pc from October, but still is at a strong 57.5. Sixteen of the index’s 18 components were in expansion. New orders and production are over 60 and consumer inventories are at a 10-year low, which is another good sign. Labor shortages due to COVID-19 will constrain the PMI in the next few months. The Shapiro Nonferrous Scrap Index dropped slightly in November, as anticipated during the holidays.  

The Chinese Caixin manufacturing index was up to 54.9 from 53.6, the highest it has been in 10 years. Their official PMI was also strong and at the highest pace in three years. Car sales and construction have been strong. China also reported its highest trade surplus in 30 years, with exports strong and imports lower. All this recovery has occurred, at least in part, because their current number of COVID-19 cases is so small.

China has also fueled the November spike in global metal prices and represents about 50pc of all the metals consumed. A forecast at the beginning of this year predicting a prime aluminum surplus with increased production in China is now showing a deficit of 50,000 tons, and China has been importing prime aluminum. LME aluminum was up $210/t from Nov 1, and spot prime was up almost 11 cents to a two-year high. Prime scrap prices also jumped up to near two-year highs along with aerospace turnings. Copper prices are the highest in nearly eight years, and nickel is also up. Stainless steel prices rose a whopping 20pc. Scrap steel rose an amazing 25pc, its highest price in two years, and HRC is at recent record levels of $840/t. Another reason for the price spikes is the anticipation of a coronavirus vaccine and the US economy recovering in a similar way to China.

This year, the pandemic has had a devastating health impact on too many families, and it has been a difficult and strange year for those in manufacturing. But there is reason for some optimism. The government stimulus enabled most manufacturing to rebound. The Boeing 737 Max recertification will help the aero business in 2021. Now that the vaccine is available, I am optimistic about a positive and good 2021.

I am grateful to all of you for your trust in us and your continued business. This fall, Shapiro Metals was awarded the Family Business Award by the St Louis Business Journal. Our company’s history starts back in 1904 when my immigrant grandfather began collecting “junk” with a horse and wagon. Many of our European ancestors, left in the 19th and early 20th centuries to escape religious, financial, and physical persecution. They had few possessions. But the one thing they all brought was hope. We are all the beneficiaries of their courage. 

Merry Christmas and happy holidays!

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