Producer Prices Climb Further in June

The PPI data, which covers more than 10,000 goods and services, is helpful in comparing the direction of price changes in the short and medium term. In specific, this analysis is intended to provide subscribers with a view of the relative competitive positions of sheet steel, aluminum, plastic and wood. It also includes some downstream products and a comparison of truck and rail transportation.

The composite PPI for all commodities (Figure 1) tumbled by more than 4.0% from February through April 2020 as the economy was nearly halted by the global pandemic. The recovery has been remarkable for the U.S. economy and historic for the steel industry. On an unadjusted basis, the final demand index moved up 19.6% for the 12 months ended in June, exceeding the prior month’s record advance of 18.5%, according to the BLS. The PPI is presently at 228.5 in June, up from 224.4 in May, and from 191.1 one year ago.

SMU’s benchmark hot-rolled coil price stood at a record $1,820 per ton as of July 13, preserving its historic runup as evidence of accelerating producer prices. Steel prices have increased more than fourfold from the low of $440 per ton recorded last August, with many market participants speculating a $2,000 per ton mark may soon be a reality.

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 positive swing on a 12-month basis would be expected, especially after the initial pandemic-driven slowdown and subsequent rebound. The fact that the table is predominantly green at the 24-month and 36-month level, and trending up, is a testament to the historic recovery and growth trajectory for the overall economy. Through June, all 16 sectors are now on the rise at the 12-month level, with HR and CR carbon steel sheet and strip showing absurd increases of 162.9% and 145.5%, respectively. The 24-month and 36-month increases are of even greater impact, as they include pre-pandemic periods.

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 of rising demand and prices seen across the steel market. The marketplace has been resilient, surpassing every speculated high as current prospects point towards further gains.

Both steel and aluminum products (Figure 2) have overtaken pre-pandemic PPI figures and show no signs of slowing down. Comparing the price changes of cold rolled steel sheet and flat rolled aluminum, the lines have crossed and then reversed only a handful of times over the past five years. Both have rebounded from last year’s losses, however, cold rolled steel sheet prices have reached unheard of levels through June, overshadowing the impressive rebound flat rolled aluminum has seen.

Cold rolled steel prices reached positive territory in December for the first time since May 2019 and have since jumped by 145.5% through June. Flat rolled aluminum, by comparison, reached a positive 32.2% in June. As impressive as cold rolled steel price gains have been, they were outpaced by hot rolled. Hot rolled prices surged 10.7% in June versus May, and are up 162.9% when compared to the same year-ago period.

Although aluminum prices are still well behind steel in terms of growth, they have improved month on month since October when growth was a negative 10.0%. In contrast, steel tinware and aluminum cans have remained largely stable over the past 12 months, with aluminum cans up 2.9% month on month in June, but still up 14.9% since January. Steel tinware was up by 2.7% when compared to May and 7.6% year on year through June.

Prices of prefabricated metal buildings and prefabricated wood buildings have both seen significant 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 31.8% through June 2021 and have increased 19.1% since January. Prefabricated wood buildings have seen growth of 29.5% year over year, and are up 4.6% from May. The price of wood buildings has escalated by more than 21.5% since January.

The prices of steel and plastic pipe have both experienced big swings due to COVID-19 as well. Steel pipe prices dropped to a negative 8.0% through September last year, but rallied to a positive 46.7% through June. By comparison, plastic pipe has rallied by more than 36.3% since September, reaching a positive 42.1% growth in June.

The escalation of truck transportation prices has far exceeded those of rail (Figure 4) since they both bottomed out in June of last year. Rail dipped to a negative 1.5% in June 2020 and has since slowly corrected to a positive 6.2% through June 2021. Long distance trucking, on the other hand, has recovered to positive 24.5% through June after falling to negative 7.5% one year ago. The increased freight pricing has been a compounding factor to steel buyers already wrestling with historically high finished steel prices. Even though long distance trucking decelerated by 0.1% month on month, freight costs have experienced the most significant increase in more than a decade.

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 6.0% through June, the highest mark since July 2018.

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