Housing market cools but doesn’t stifle growth
by Edwin Scott Jr.

Excerpted from the August 6 ISA Materials Market Digest

Second-quarter GDP growth came in at 2.5 percent, under our expected 3.0 to 3.5 percent range. But, as happens with regularity, the initial GDP is often revised upward when additional data are factored in. This could well be the case currently, despite a gradual cooling of the housing market and the continuing drag of high energy prices. In our view these negatives are amply offset by some major plusses, to wit:

• Record corporate profits – amounting to $1.7 trillion in the last year, double the 1999 level when the stock market peaked.
• Record household net worth – of $54 trillion, double what it was a decade ago.
• Record dividend payouts – with corporate distributions of $550 billion last year, again almost double the 1999 level.
• Steadfast consumer confidence – which has held up surprisingly well in the face of $3-plus gasoline and a summer of weather that has been anything but tranquilizing.

Carbon Steel. While structural shapes and plate remain tight, there has been some moderation in flat-rolled demand. This is reflected in shorter lead times for U.S. mills as well as increased stocks in steel service centers. Prices have been shaded selectively, but there’s no sign of another fire sale in steel such as happened in early 2005. Raw steelmaking materials have been going in two directions. Prices for ferromanganese and some other alloys have been moving up on tight supply. But the scrap market hit a wall in late July when an auction of factory bundles saw price drop by $70-85/long ton. In the OCTG sector, drilling activity remains very strong, but prices have been under pressure from large recent shipments of Chinese imports.

Stainless Steel. It’s all about nickel. Strong global demand for stainless steel is putting heavy pressure on nickel supplies. Like copper (see below) this metal is susceptible to labor problems capable of moving near-record nickel prices still higher. During July trading on the London Metals Exchange, nickel briefly topped out at $29,500/metric ton, and many market watchers thought it could yet break through the $30,000 barrier.

Copper. Labor problems continued to plague Latin American mining companies for most of July. Two major strikes were settled and a third was postponed when the existing contract was extended from August 1 to 5 and very possibly beyond. With demand strong and supply often uncertain, copper is likely to continue in its trading range of $7,000-8,000/metric ton.

Resins. After a June blizzard, resin price action in July was relatively calm. Olefins were flat to down a little while a variety of other resins announced price increases, but most had an August or September starting date.

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