Key Market Indicators Through June 30, 2017

Please refer to Table 1 for the view of the present situation and the quantitative measure of trends. Readers should regard the color codes in the present situation column as a visual summary of the current market condition. The “Trend” columns of Table 1 are also color coded to give a quick visual appreciation of the direction in which the market is headed. All data included in this table was released in June, the month or specific date to which the data refers is shown in the second column from the far right, and all data is the latest available as of June 28, 2017.

Present Situation

There was a net increase of two indicators that we consider to be negative in June and a decrease of one neutral and one positive. We currently view 17 of the 36 indicators as positive, 10 as neutral and 9 as negative. Our intent in using the word neutral is to say that this indicator is considered to be in the mid-range of historical data. The changes in June were as follows: The Chicago Fed National Activity Index had a reading of 0.04 in June, down from 0.21 in May. A value of zero suggests an economy that is performing at its long-term potential. This indicator was re-classified from positive to neutral. In the raw materials section, the prices of both Chicago shredded and coking coal fell into the range that we consider historically negative. Both were neutral in May. There were no changes in our perception of the present situation of the long or sheet product markets, or in the construction and manufacturing indicators. Figure 1 shows our monthly assessment of the present situation since January 2010 on a percentage basis.

The number of indicators classified as positive peaked at 47.2 percent in October 2014 and steadily declined to 11.1 percent in the three months through January 2016. Beginning in February 2016, there was a steady increase in the number of indicators that we consider to be positive through May 2017 when a new high of 50.0 percent was reached. June declined to 47.2 percent positive. The combination of positive and neutral indicators at the end of March was the highest ever at 83.3 percent.

Trends

Most values in the trends columns are three-month moving averages to smooth out what can be very erratic monthly data. Trend changes in the individual sectors since the end of May are described below, together with some general comments. (Please note in most cases this is not June data, but data that was released in June for previous months.)

In the four months October through January, there was a steady improvement in trends. A positive surge in February was sustained in March and April followed by a significant decline in both May and June. Figure 2 shows the trend of the trends and the pre-recession situation at the far left of the chart.

The proportion of indicators trending positive through June 28 was 61.1 percent, down from 69.4 percent at the end of May and 80.6 percent at the end of April. March hit 83.3 percent, the best result since our data was first compiled. In the General Economy section, both the Chicago Fed National Activity Index and consumer confidence reversed direction and trended negative.

In the SMU index section, the steel buyer’s sentiment has declined slightly from its all-time high in mid-March of 74.17 to 70.67 on June 18 (Figure 3).

This is still an extremely positive result. Service center excess of sheet products became negative in January and became increasingly negative through April before reversing slightly in May. This is a proprietary SMU calculation. We regard an inventory deficit to be positive in terms of pricing power; the deficit was 816,000 tons in April and 800,000 tons in May (Figure 4).

In the raw materials section, the price of Chicago shredded, which was unchanged in May, declined by $8.00 in June. The price of iron ore and coking coal continued to trend down, while zinc continued the slight increase achieved in May. We regard rising raw materials prices as positive and indicative of a strengthening market. In the long products sector, the only trend change was to the price of rebar, which declined in May and was unchanged in June. There were no trend reversals in the sheet market indicators or in the construction or manufacturing indicators.

We believe a continued examination of both the present situation and direction is a valuable tool for corporate business planning.

Explanation: The point of this analysis is to give both a quick visual appreciation of the market situation and a detailed description for those who want to dig deeper. It describes where we are now and the direction in which the market is headed. The chart is stacked vertically to separate the primary indicators of the general economy, of proprietary Steel Market Update indices, of raw material prices, of both sheet and long product market indicators, and finally of construction and manufacturing indicators. The indicators are classified as leading, coincident or lagging as shown in the third column.

Columns in the chart are designed to differentiate between where the market is today and the direction in which it is headed. Our evaluation of the present situation is subjectively based on our opinion of the historical value of each indicator. There is nothing subjective about the trends section, which provides the latest facts available on the date of publication. It is quite possible for the present situation to be predominantly red and trends to be predominantly green, or vice versa, depending on the overall situation and direction of the market. The present situation is subdivided into below the historical norm (-), (OK), and above the historical norm (+). The “Values” section of the chart is a quantitative definition of the market’s direction. In most cases, values are three-month moving averages to eliminate noise. In cases where seasonality is an issue, the evaluation of market direction is made on a year-over-year comparison to eliminate this effect. Where seasonality is not an issue concurrent periods are compared. The date of the latest data is identified in the third values column. Values will always be current as of the date of publication. Finally, the far right column quantifies the trend as a percentage or numerical change with color code classification to indicate positive or negative direction.