Producer Prices Keep Momentum in January

Core PPI inflation at the wholesale level, which excludes food, energy and trade services, climbed 0.9% for the month, well ahead of the 0.4% estimate. For the 12-month period, the measure increased 6.9%. Both core and headline PPI gains over the year were 0.1 percentage point lower than the record levels hit in December 2021.

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) weakened at the onset of the pandemic nearly two years ago, tumbling by more than 4.0%. The recovery has been significant for the U.S. economy and the steel industry.

As has been the case through much of the coronavirus era, goods prices outweighed those for services, rising 1.3% and 0.7%, respectively. Final demand energy prices jumped 2.5% in January, while food climbed 1.6%. The PPI was at 244.3 in January, up from 241.0 in December and up from 204.3 one year ago.

SMU’s benchmark hot-rolled coil price range stood at $1,020-$1,140 per net ton ($51.00-$57.00/cwt) with an average of $1,080 per ton ($54.00/cwt) FOB mill, east of the Rockies as of Feb. 15. HRC prices have dropped by $400 per net ton since SMU’s PPI report last month. PPI prices have seen a slowdown in their rate of rise, but inflation continues to expand for most goods, unlike the situation with steel prices.

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- and 24-month basis is no wonder, given the marketplace has seen such a strong recovery from the initial COVID-driven collapse. The growth at 36 months, however, is significant. The clear surge further reinforces this historic recovery and growth trajectory for the overall economy. Through January, 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 175.5% and 194.8%.

Last month’s gains are well off from the percentage changes for HR and CR carbon steel sheet and strip that maxed out at 242.0% and 247.0%, respectively, in November. The shift supports the downtrend seen in steel prices over the past couple of months. Despite that, the 36-month increases are of even greater significance, as they include pre-pandemic periods and highlight the extent of the historic price run seen last year.

The table includes direct comparisons where possible between steel and competing products, while also including plastic products, transportation, warehousing and storage to further spotlight 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 18.1% to 93.4% 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 has now shifted down for some products. The turn may indicate that the growth momentum has run out of steam and already peaked, 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 easily overtaken pre-pandemic PPI figures and reached recent highs. Both steel and aluminum products have begun to lose ground, however, with steel products slipping for the third consecutive month. Comparing the price changes of cold rolled steel sheet and flat rolled aluminum, both recovered from 2020’s losses and reached historic highs. The trajectory in cold rolled steel sheet prices overshadowed the impressive rebound in flat rolled aluminum. Cold rolled has continued to erode while flat rolled aluminum expanded in January.

Cold rolled steel prices reached positive territory for the first time since last January after the initial fall in April 2020. Since then they’ve jumped by 194.8% through January, but are still down 61.8 percentage points from October’s high of 256.6%. Flat rolled aluminum, by comparison, is presently at 29.3%, up 0.2 percentage points from December, but down from November’s high of 41.7%.

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 continues, as hot rolled prices have been falling at a faster rate, down 6.4% monthly in January, compared to a 3.7% decrease during the same period.

Though aluminum prices are well behind steel in terms of growth, they had a strong run, improving month on month for nearly a year since October 2020. In contrast, steel tinware and aluminum cans have remained largely stable over the past 15 months, but jumped 22.2% month on month in January to a reading of 291.0 from 238.2 in December. Aluminum cans grew by 13.8% month on month and were up 31.4% year on year through January.

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 turning down in January. Prefabricated steel building prices fell to a negative 3.5% in June 2020, but rallied to a positive by 37.9% over 17 months, but growing by just 0.4 percentage points month on month. A similar trend was seen for prefabricated wood buildings over the same period at 24.6% growth to close out 2021, but momentum shifted in January, slipping 0.5% versus December’s results.

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 2020, but rallied to a positive 93.4% 16 months on, with a 3.0% increase in January. By comparison, plastic pipe has rallied by more than 73.0%% over the past 12 months, reaching a positive 76.0% growth in January on a year-on-year basis, and up 1.4% versus December. 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 since they both bottomed out in June 2020. Rail dipped to a negative 1.7% at that time but has since steadily corrected to a positive 8.9% through January. Long distance trucking, on the other hand, recovered to positive 23.98% this past November after falling to negative 7.5% in July 2020. 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 the ever-changing steel price. Even though long-distance grew by just 2.7% month on month, freight costs have experienced the most significant increase in more than a decade.

Warehousing and storage prices also have risen, hitting the highest measure to date. After initially falling to a negative 2.3% at the onset of the global pandemic, they had rebounded to a positive 10.2% through December. Prices for warehousing and storage jumped 7.2% month on month in January to a reading of 130.8, and 18.5% above the same year-ago level. Figure 4 is a side-by-side comparison of transportation and warehousing dynamics.

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