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Metals Monitor - Great American X V W Z — Metals Monitor Z Recent Appraisal Trends Z Appraisals valuing metals inventory typically rely on market prices, which are affected by input

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  • 1 September 2014 Metals Monitor

    1

    Metals Monitor

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  • 1 September 2014 Metals Monitor

    1 Trend Tracker

    Ferrous: NOLVs remained relatively

    consistent due to minimal pricing volatility

    over the past six months.

    Non-ferrous: NOLVs increased due to price

    increases for aluminum, lead, zinc, and nickel

    in the summer months.

    Ferrous: Sales were mixed due to higher

    prices for some products and flat to lower sales

    volumes.

    Non-ferrous: Sales were mixed due to higher

    prices for aluminum, nickel, and stainless steel,

    as well as fluctuations in copper price trends.

    Ferrous: Gross margins increased due to price

    stabilization.

    Non-ferrous: Gross margins were mixed due

    to a tight spread between prime aluminum and

    scrap pricing, higher margins for nickel and

    stainless steel due to price increases, and

    volatile copper margins.

    Ferrous: Inventory levels remained consistent,

    as the seasonal summer slowdown inhibited

    speculative buying and stocking.

    Non-ferrous: Inventory levels remained

    consistent as companies managed inventory

    levels relative to price fluctuations.

    Ferrous: Prices were consistent, as

    fluctuations in scrap pricing remained within a

    range of $10 per gross ton over the past four

    months, reducing the pricing pressure placed

    on downstream products.

    Non-ferrous: Pricing increased due to price

    increases for aluminum, lead, zinc, nickel, and

    stainless steel, with volatile prices for copper.

    Ferrous Metal Non-Ferrous Metal

    NOLVs

    Sales Trends

    Gross Margin

    Inventory

    Pricing

  • 2 September 2014 Metals Monitor

    2 Overview

    Over the summer, the demand outlook for steel brightened

    slightly, although the steel market remains clouded by excess

    capacity and economic uncertainty. Meanwhile, supply

    pressures boosted prices for many base metals in recent months.

    In the U.S., prices for flat rolled coil and rebar

    slipped in June amid the seasonal summer

    slowdown. Hot rolled coil prices recovered in

    July, joined by cold rolled coil prices in

    August, while rebar prices held firm. Plate

    pricing, meanwhile, continued its steady

    ascent. Steel buyers demonstrated healthy

    demand despite a high level of imports.

    However, shifts in the economic or political

    landscape, as well as the announced addition

    of steel capacity through 2020, could pose a

    threat to the domestic steel market.

    Base metals have experienced tightness in the

    physical markets due to supply and demand

    factors, lifting prices for aluminum, zinc, and

    lead more than expected.

    The elevation in prices may be short-lived,

    however, as the volumes of metals held in

    and out of official exchange warehouses

    distort the physical markets. In addition,

    demand remains tepid, and supplies of base

    metal scrap are readily available, with the

    exception of stainless steel scrap.

  • 3 September 2014 Metals Monitor

    3 Overview

    The automotive industry is a significant consumer of steel

    and aluminum. Auto sales climbed throughout the

    summer, buoyed by a perfect storm of seasonal incentives,

    higher demand for trucks and SUVs, easier accessibility to

    credit, new product offerings, lower gas prices, and

    improvement in the economy.

    In August 2014, overall auto sales increased 5.5% year-

    over-year, with one less selling day to boot. Moreover, the

    industrys annualized selling rate reached 17.5 million

    vehicles, according to Autodata, marking the highest level

    in nearly eight years and returning the industry to pre-

    recession levels. Of the Big Three Detroit automakers,

    Chrysler Group LLC posted the best results, with a 20%

    sales increase in August. Meanwhile, Ford Motor

    Company experienced flat year-over-year sales, while

    General Motors Companys sales slipped 1%. Asian

    automakers fared better, with most registering sales

    increases. Analysts are optimistic auto sales will continue

    to grow at a healthy pace through the end of 2014.

    The Institute for Supply Managements purchasing

    managers index (PMI), an indicator for manufacturing

    activity, has generally increased in recent months. The

    PMI rose 1.9 points from 57.1 in July to 59.0 in August,

    marking the highest reading in the last year, while the

    lowest reading of 51.3 was registered in January.

    A reading above 50 indicates the manufacturing economy

    is generally expanding, while a reading below 50 reflects

    general contraction. The manufacturing sector has

    expanded for the 15th consecutive month. A PMI above

    42.2 over a period of time typically denotes an expansion

    of the overall economy. The August PMI therefore

    demonstrated growth in the overall economy for the 63rd

    consecutive month.

    The Baker Hughes Rig Count tracks active rigs engaged in

    the exploration of oil and natural gas, and is a leading

    indicator of demand for metal products used in drilling,

    completing, producing, and processing hydrocarbons.

    U.S. rig counts have increased over the past year, with

    year-over-year gains for the vast majority of weekly

    counts. Canadian rig counts have been more volatile,

    although they have also mostly increased year-over-year.

    As of September 5, 2014, the U.S. rig count totaled 1,925

    rigs drilling for oil or gas, increasing by 11 rigs from the

    prior week and up by 158 rigs from the same week in

    2013. Although demand is strong for both crude oil and

    natural gas, the number of oil rigs has increased in recent

    years, while the number of natural gas rigs has been

    falling since mid-2011 due to efficient drilling methods

    that require fewer rigs for the same amount of

    productivity. In addition, oil prices have remained above

    the $90 per barrel throughout 2014 to date, supporting oil

    drilling and a high oil rig count.

    Month Seasonally Adjusted PMI

    August 2014 59.0

    July 57.1

    June 55.3

    May 55.4

    April 54.9

    March 53.7

    February 53.2

    January 2014 51.3

    December 2013 56.5

    November 57.0

    October 56.6

    September 56.0

    August 2013 56.3

    Date

    U.S.

    Rig

    Count

    Change

    From

    Prior

    Year

    Canadian

    Rig Count

    Change

    From

    Prior

    Year

    September 5, 2014 1,925 158 414 25

    August 8 1,908 130 213 29

    July 3 1,874 117 309 95

    June 6 1,860 95 214 62

    May 2 1,854 90 163 42

    April 4 1,818 80 235 29

    March 7 1,792 40 587 7

    February 7 1,771 12 621 (10)

    January 10, 2014 1,754 (7) 477 (54)

    December 6, 2013 1,775 (25) 402 (4)

    November 1 1,742 (58) 394 11

    October 4 1,756 (81) 361 (11)

    September 6 2013 1,767 (97) 389 44

  • 4 September 2014 Metals Monitor

    4 Recent Appraisal Trends

    Appraisals valuing metals inventory typically rely on

    market prices, which are affected by input costs,

    supply levels, and demand from metal-consuming

    industries such as the automotive, industrial, and oil

    and gas drilling sectors.

    Based on industry trends, NOLVs for ferrous metals

    remained relatively consistent due to minimal

    pricing volatility over the past six months. NOLVs

    for non-ferrous metals increased, as supply-side

    pressure drove up pricing for aluminum, lead, zinc,

    and nickel throughout the summer months, while

    other base metal prices were fairly volatile.

    Sales of ferrous inventory were mixed, with no major

    shift in demand for downstream products. Higher

    prices this year versus last year helped stabilize

    dollar sales trends, while sales volumes remained flat

    to down. A number of companies expect demand

    increases from the construction market in the third

    quarter. Sales of non-ferrous inventory were also

    mixed, as increases in aluminum, nickel, and

    stainless steel pricing drove up dollar sales trends for

    these metals versus last year, while copper sales

    trends continue to fluctuate with pricing. However,

    there were no major changes in sales volume trends.

    Gross margins increased for ferrous metals as a result

    of continued price stabilization, allowing mills and

    distributors to rely on stable inventory costs and

    maintain margins. Gross margin trends for non-

    ferrous metals were mixed due to global pressures.

    Continued increases in aluminum prices have

    allowed companies to boost selling prices, but a tight

    spread between prime aluminum and scrap pricing

    has hindered gains in margin. Meanwhile, nickel

    and stainless steel margins have gained steam from

    price increases, while copper margins remain

    volatile.

    Inventory levels for ferrous metals were consistent,

    as the seasonal summer slowdown

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