Producer Price Indexes of Sheet Steel, Aluminum, Plastic and Transportation

The September report from the BLS read as follows: The Producer Price Index for final demand rose 0.3 percent in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices were unchanged in August and declined 0.4 percent in July. On an unadjusted basis, the final demand index increased 0.7 percent for the 12 months ended in September, the largest 12-month rise since advancing 0.9 percent in December 2014. The index for final demand less foods, energy, and trade services moved up 0.3 percent in

September, the same as in August. For the 12 months ended in September, prices for final demand less foods, energy, and trade services rose 1.5 percent, the largest increase since climbing 1.5 percent for the 12 months ended November 2014. Product detail: Thirty percent of the September rise in the index for final demand goods can be traced to a 5.3-percent increase in gasoline prices. The indexes for pharmaceutical preparations, fresh and dry vegetables, diesel fuel, jet fuel, and residential natural gas also moved higher. The indexes for carbon steel scrap and asphalt declined.

For the purpose of this report, we at SMU have extracted comparative statistics for sheet steel, aluminum and plastic products and truck and rail transportation. Table 1 is a summary of each category on a year over one, two and three year basis.

The gain/loss pattern as shown by the color codes in this latest update is similar to our February and May analyses except that HR carbon steel sheet and strip increased at the 12 month level after previously having declined. Our analysis of the PPI data shows that commodity prices as a whole declined by 1.1 percent in 12 months through September, an improvement from the 9.4 percent decline in 24 months. Commodity prices in general are back to where they were in late-2010. If as expected the US $ rises during the balance of the year in anticipation of a Fed rate increase in December then there will be downward pressure on commodity prices. It is evident from Table 1 that carbon steel sheet declined much more than aluminum sheet at the 36 month level, about broke even in 24 months and moved ahead in 12 months. The PPI of steel cans has fallen by more than that of aluminum cans in all three time periods. Data for OCTG is incomplete from the BLS. We know that steel dominates in most oil production and refining applications as plastic is used more often in distribution, mostly of natural gas, to end users. The PPI of plastic piping has been declining faster than commodities in general in all three time comparisons. An analyst with Cleveland based Freedom Group Inc., told AMM that plastic made significant inroads in oil and gas pipe applications in 2009 through 2012 but since then inroads have slowed.

Table 1 also shows price changes for truck and rail transportation and indicates that rail has become more competitive in all three time periods considered.

The official description from the Bureau of Labor Statistics (BLS) reads as follows. The Producer Price Index (PPI) is a family of indexes that measure the average change over time in the prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI). CPIs measure price change from the purchaser’s perspective. Sellers’ and purchasers’ prices can differ due to government subsidies, sales and excise taxes, and distribution costs. More than 10,000 PPIs for individual products and groups of products are released each month. PPIs are available for the products of virtually every industry in the mining and manufacturing sectors of the U.S. economy. New PPIs are gradually being introduced for the products of industries in the construction, trade, finance, and services sectors of the economy. More than 100,000 price quotations per month are organized into three sets of PPIs: (1) Stage-of-processing indexes (2) commodity indexes, and (3) indexes for the net output of industries and their products. The stage-of processing structure organizes products by class of buyer and degree of fabrication. The commodity structure organizes products by similarity of end use or material composition. The entire output of various industries is sampled to derive price indexes for the net output of industries and their products.