Producer Prices Keep Climbing in November

Since falling in April 2020, the composite PPI of all commodities from the Bureau of Labor Statistics (BLS) has gained ground for 19 consecutive months. It has fully recovered from the COVID-driven collapse, overtaking pre-pandemic levels by nearly 60 points. November’s index registered a 0.8% gain against the prior month, seasonally adjusted, following a 0.6% increase the month prior.

The PPI data, which cover 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% at the onset of the pandemic last spring. The recovery has been outstanding for the U.S. economy and historic for the steel industry. On an unadjusted basis, the final demand index moved up 22.9% for the 12 months ended in November. The PPI was at 243.6 in November, up from 240.2 in October, and from 198.2 one year ago.

SMU’s benchmark hot-rolled coil price range stood at $1,580-$1,760 per net ton ($79.00-$88.00/cwt) with an average of $1,670 per ton ($83.50/cwt) FOB mill, east of the Rockies as of Dec. 14. HRC prices have declined by $185 per net ton since our last PPI report last month. The past year’s surge in steel prices peaked in September and has declined since then. PPI prices have seen a slowdown in their rate of rise, but have not yet shown signs of turning as seen in SMU’s HRC benchmark.

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 is not a surprise, as the market has rebounded from the initial coronavirus collapse. The growth at the 24-month and 36-month levels, however, is significant. The clear surge further reinforces this historic recovery and growth trajectory for the overall economy since the initial COVID fall. Through November, all 16 sectors were on the rise at the 12-month level, with HR and CR carbon steel sheet and strip showing huge increases of 242.0% and 247.0%, respectively. The 24-month and 36-month increases are of even greater significance, 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. Construction-related products are up anywhere from 19.7% to 82.9% at the 12-month level, with similar increases for the 24- and 36-month periods as well. Despite growing concerns surrounding the impact of inflation on the marketplace, it has been resilient, surpassing every speculated high. The steady slowdown in the rate of rise may indicate that the upward momentum is running out of steam and nearing the top, as we’ve seen with HRC. Yet, supply-chain bottlenecks may keep PPI indices rising or firm for the time being.

Both steel and aluminum products (Figure 2) have now easily overtaken pre-pandemic PPI figures and reached recent highs. Steel products, however, have begun showing signs of slowing down, while aluminum products have recovered from a recent descent. Comparing the price changes of cold rolled steel sheet and flat rolled aluminum, both recovered from last year’s losses and reached historic highs. The trajectory in cold rolled steel sheet prices had undoubtedly overshadowed the impressive rebound in flat rolled aluminum. Cold rolled steel, though, has shown signs of slowing momentum, edging down slightly on a year-on-year comparison through November.

Cold rolled steel prices reached positive territory in January for the first time since April 2019 and have since jumped by 247.0% through November, but are down from 256.6% the month prior. Flat rolled aluminum, by comparison, is presently at 41.9%, up 3.5 percentage points from October’s total. Cold rolled steel price gains have shown significant growth since July. Its earlier growth rate lead on a percentage basis over hot rolled steel prices has tightened though. In November, cold rolled rose 1.4% month on month, compared to a 3.6% increase for hot rolled.

Although aluminum prices are still miles behind steel in terms of growth, they had a strong run, improving month on month for nearly a year since last October. In contrast, steel tinware and aluminum cans have remained largely stable over the past 15 months, as their gains and losses have not been as historically accentuated. Both steel tinware and aluminum cans were unchanged month on month, but are up 14.2% and 10.0% year on year through November, respectively.

Prices of prefabricated metal buildings and prefabricated wood buildings have both seen significant increases since the beginning of 2021, but the rate of growth has diverged over the past few months, with prices for prefabricated wood buildings edging down successively in September and October, then recovering by 0.9% in November. Prefabricated steel building prices fell to a negative 3.5% last June, but rallied to a positive by 41.3% over 16 months. A similar trend was seen for prefabricated wood buildings over the same period, at 19.7% growth. Momentum has shifted of late, as prefabricated wood buildings have varied, while prefabricated metal buildings seen repeated growth month on month over the same period.

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 82.9% 14 months on, with a 2.5% increase in November. By comparison, plastic pipe has rallied by more than 70.0%% since January, reaching a positive 70.1% growth in November on a year-on-year basis. Figure 3 is a side-by-side comparison of prefabricated buildings and pipe price dynamics.

The growth 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 1.7% last June and has since slowly corrected to a positive 8.0% through November 2021. Long distance trucking, on the other hand, recovered to positive 22.8% in September after falling to negative 7.5% last July. Trucking has been a bit erratic of late, however, the increased freight pricing over the past year has been a significant factor for steel buyers dealing with historically high finished steel prices. Even though long-distance grew by 1.3% month on month, freight costs have experienced the most significant increase in more than a decade.

Warehousing and storage prices also have risen. After initially falling to a negative 2.3% at the onset of the global pandemic, they had rebounded to a positive 10.0% through October. Prices for warehousing and storage slipped 2.0% in November to a reading of 118.6 from 121.0 the month prior.

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