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

The following is an abridged version of the February report from the BLS: “The Producer Price Index for final demand increased 0.3 percent in February, seasonally adjusted. Final demand prices rose 0.6 percent in January and 0.2 percent in December. On an unadjusted basis, the final demand index climbed 2.2 percent for the 12 months ended February 2017, the largest advance since a 2.4-percent increase in the 12 months ended March 2012. Prices for final demand goods moved up 0.3 percent in February, the sixth consecutive rise. Over half of the broad-based February increase can be traced to the index for final demand energy, which advanced 0.6 percent. The index for processed goods for intermediate demand moved up 0.4 percent in February, the sixth consecutive increase. About 80 percent of the February rise is attributable to a 0.5-percent advance in prices for processed materials less foods and energy. A major factor in the February advance in the index for processed goods for intermediate demand was prices for primary basic organic chemicals, which increased 4.3 percent. The indexes for electric power, cold rolled steel sheet and strip, residual fuels, rubber and rubber products, and lubricating oil base stocks also moved higher. The indexes for gasoline and ethanol decreased.”

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 on a year/1 year basis is much better than in any of our reports since January 2015. Our analysis of the PPI data shows that commodity prices as a whole rose by 5.4 percent in 12 months through February, an improvement from the 7.1 percent decline in 36 months. If as expected the US dollar rises during the balance of the year as the Fed raises interest rates, there will be downward pressure on commodity prices. It is evident from Table 1 that carbon steel sheet increased by much more than aluminum sheet at the 12 month level, which was a recovery from the greater declines for steel at the 24 and 36 month levels. The change in the PPI of steel and aluminum cans has been similar over all three time periods. The PPI of OCTG increased in the last twelve months after severe declines in the previous two years. We understand 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 improved in the last year after declining by less than OCTG in the previous two years. An analyst of 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 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.