Producer Prices Advance Further in February

The composite PPI for all commodities (Figure 1) tumbled by more than 4.0% from February through April 2020 because of COVID-19 shutdowns and mitigation efforts. The economy and steel demand have made a historic turnaround since then, with hot rolled coil prices reaching a new record of $1,340 per ton FOB mill, east of the Rockies, according to SMU’s check of the market April 5. Final demand’s increase of 2.1% in February is the largest advance since April 2014, and the 10th consecutive increase month on month, not seasonally adjusted, according to the BLS. The PPI is presently at 208.5 in February and has not looked back since hitting its most recent bottom of 185.5 last April.

A summary of each segment on a year over one-, two- and three-year basis is shown in the table below. The gain/loss pattern is shown by the color codes; rising prices are considered positive. The table was predominantly green at the 24-month and 36-month level through September 2019; however, beginning in December 2019, eight of the 16 sectors had been in decline at the 12-month level. Through February, 15 of the 16 sectors are now on the rise at the 12-month level, with HR and CR carbon steel sheet and strip showing increases of 32.8% and 28.9%, respectively.

The table includes direct comparisons where possible between steel and competing products, while also including plastic products, transportation, warehousing and storage to further highlight current market conditions. Even though there may not be a direct or specific comparison of steel, these PPI numbers clearly match the trend seen across the steel market and rising demand. The marketplace has been resilient, with current expectations pointing towards additional growth in the near-term.

Both steel and aluminum products (Figure 2) have now surpassed pre-pandemic PPI figures. As we compare the price change of cold rolled steel sheet and flat rolled aluminum, the lines crossed in August 2018 when steel prices began to escalate faster than aluminum. But this relationship reversed in July 2019 when cold rolled plummeted. And although both have rebounded after Q2 losses, prices for cold rolled steel sheet have soared through February, leaving flat rolled aluminum well behind. Cold rolled steel reached positive territory for the first time since May 2019 in December and has since jumped to 32.8% through February. Flat rolled aluminum, by comparison, reached positive growth of 1.9% in February for the first time since April 2019.

Although aluminum is still far behind steel in terms of growth, it has improved month on month since October when it was a negative 10.0%. In contrast, steel tinware and aluminum cans have remained largely stable over the past 12 months, with aluminum cans rising 1.4% month on month in February, while steel tinware was up by 0.4% when compared to January.

Prices of prefabricated metal buildings and prefabricated wood buildings have both seen big increases (Figure 3) since the beginning of 2021. Prefabricated steel building prices fell to a negative 3.1% last June, but have since rallied to a positive 17.3% through February and increased 4.8% month on month. Prefabricated wood buildings have seen growth of 10.4% year over year, up from 7.2% the month prior. The price of steel buildings has escalated by more than 16.0% since September.

The prices of steel and plastic pipe have both experienced swings in prices due to COVID-19, but steel pipe and tube has experienced a greater impact. Steel pipe prices dropped to a negative 8.0% through last September, but rallied to a positive 11.7% through February. By comparison, plastic pipe has rallied by more than 15.0% since September, reaching a positive 18.2% in February.

The escalation of truck transportation prices has exceeded those of rail (Figure 4) since they both bottomed out this past June. Rail dipped to a negative 1.5% in June and has since slowly corrected to a positive 0.7% through February. Long distance trucking on the other hand has rebounded to positive 7.2% through February after falling to negative 7.5% in June 2020. The increased freight pricing has been a compounding factor to steel buyers already wrestling with historically high finished steel prices.

Warehousing and storage prices also have rallied. After initially falling to a negative 2.3% at the onset of the global pandemic, they have since rebounded to a positive 3.5% through February, the highest mark since December 2018.

SMU Comment: February’s composite PPI and continued uptrend across all indices over the past two quarters aligns with the general sentiment in the steel industry. Mass vaccination efforts, a proposed $2 trillion infrastructure bill, and rising consumer confidence should push producer prices up further in Q3. 

The official description of this program 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 changes 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.

By David Schollaert, David@SteelMarketUpdate.com