Ulbrich Economic Update - Number 52 (September 2024)
Download the 16 page Economic Update for the full details of recent economic trends impacting the steel and commodities markets, as well as the associated industries across the globe. Continue for the Executive Summary.
The Americas
FED CHAIR POWELL OFFERED AN EXPLICIT ENDORSEMENT OF INTEREST RATE CUTS, saying further cooling in the job market is unwelcome and expressing confidence that inflation was within reach of the Fed’s 2% target. Other August data included: The U.S. economy grew at a 3% annualized rate in the 2nd Qtr, up from the previous estimate of 2.8% and a sharp acceleration from 1.4% in the 1st Qtr. Consumer confidence rose to a six month high. Nonfarm payrolls increased by 142,000 jobs and the unemployment rate fell to 4.2%. Services sector business activity was steady, but employment gains slowed, consistent with an easing labor market.
July data showed: Factory orders jumped 5.0% after falling 3.3% in June, boosted by defense aircraft orders. Factory output fell 0.3%, pulled down by a 7.8% drop in motor vehicle and parts output. Mining output was unchanged. Utilities production fell 3.7%. Overall industrial output fell 0.6% after advancing 0.6% in June. Durable goods orders surged 9.9%, boosted by a 34.8% rebound in transportation orders. Defense aircraft orders jumped 12.9%; motor vehicle orders fell 2.6%. Producer prices rose 0.1% as an energy driven rebound in the cost of goods was tempered by cheaper services. Consumer prices rebounded 0.2% (before rounding up from 0.155%), but the annual increase in inflation slowed to below 3% (2.9%) for the first time in nearly 3-1/2 years. Retail sales rose 1%, a strong pickup from June, when sales were revised down to a 0.2% decrease. Motor vehicle and parts dealers saw the biggest monthly gain of 3.6%. Consumer spending rose 0.5%, with outlays on motor vehicles and parts leading the charge. Personal income gained 0.3%.
Overseas
CHINA’S REMAINING GROWTH ENGINES ARE SHOWING SIGNS OF SPUTTERING, while the property market continues to drag on the economy. Factory activity contracted for a fourth straight month in August. The economic chill from China shows signs of spreading across Asia. In August, Taiwan’s manufacturing activity eased for a second straight month. ECB interest rate cut expectations increased as inflation in the eurozone fell. Markets are betting on a 0.25% drop in the ECB’s benchmark rate to 3.5%.
Metals & Commodities
IRON ORE PRICES HIT THEIR LOWEST LEVEL IN TWO YEARS as China’s stricken property sector depresses steel demand and squeezes miners’ earnings. Prices have plunged by more than a third this year, cumulatively wiping off about $100bn in market capitalization of the “big four” miners. Mining giant BHP defused a strike at its massive Escondida copper mine in Chile after the main union tentatively agreed to management's sweetened wage offer, easing concerns about a hit to global copper supplies.
Steel Industry Updates
U.S. STEEL’S CHIEF EXECUTIVE SAID THE COMPANY WOULD CLOSE STEEL MILLS and likely move its headquarters out of Pittsburgh if its planned sale to Nippon Steel collapses. Outokumpu's 2nd Qtr sales fell to €1.540bn compared to €1.911bn a year ago. Total stainless steel deliveries were 7% lower as a significant decrease in deliveries in Europe was partly offset by higher deliveries in the Americas. ThyssenKrupp posted a net loss of €54mn for its fiscal 3rd Qtr, down from a profit of €83mn a year earlier.
Automotive Trends
FORD SCRAPPED PLANS FOR A FULLY ELECTRIC SUV in a shift that may incur as much as $1.9bn in write-offs. Ford will further postpone a next-generation electric pickup and reduce spending on EVs to 30% of its annual capital expenditures from about 40% previously. Volkswagen is considering factory closures in Germany, setting up a showdown with powerful unions as the country’s most important industry fights for its future. Any shutdowns would mark the first closures in Germany in VW’s 87-year history.
Medical Insights
ELI LILLY IS INVESTING $9BN IN A NEW INDIANA FACTORY to boost production of its popular diabetes and weight loss drugs. The company’s injector pens are facing shortages due to soaring demand. Dexcom began sales of its first over-the-counter CGM. The Stelo will cost $89 for a monthly subscription or $99 for a one-time order of two sensors. MiRus received breakthrough device designation for its Europa posterior cervical system. Built on proprietary rhenium alloys, it treats the cervical and upper thoracic spine.
Aerospace Developments
THE LARGEST AEROSPACE AND DEFENSE FIRMS ARE SET TO RAKE IN RECORD LEVELS OF CASH as they benefit from a surge in orders for weapons amid rising geopolitical tensions. The leading 15 defense contractors are forecast to log free cash flow of $52bn in 2026. NASA is considering tapping SpaceX to shuttle two astronauts back to Earth from the International Space Station. Boeing’s deliveries of commercial aircraft faltered in the first half of the year, 175 planes vs. 266 a year ago.
Energy Sector News
FRANCE IS STARTING UP ITS FIRST NEWLY BUILT NUCLEAR REACTOR IN A QUARTER OF A CENTURY. EDF said the first chain reactions at the Flamanville 3 reactor on the Normandy coast were due to get under way in early Sept. China has thirty nuclear power stations under construction and has spent billions on research and experiments such as Linglong One, the only small modular nuclear reactor approved by the IAEA to date. Solar panel imports to the U.S. from Southeast Asia surged to an all-time high in the 2nd Qtr as manufacturers raced to lock in supply before expanded tariffs took effect in June. Imports climbed 36% higher YOY.
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