Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

“Plans are worthless, but planning is everything.” Dwight D. Eisenhower 


This brilliant general and president developed a decision-making matrix.


His strategy and the matrix helped us to achieve victory in WWII. The matrix is even more important and effective today with the velocity of change in our society. Eisenhower’s strategy helps me focus on what I need to do in my business and my personal life. Breaking news, for example, is always a distraction and is almost always wrong, so it falls into box 4: eliminate and delete. 


The COVID-19 infection rate is now rising very rapidly in the US, and action to mitigate it is urgent and important. Too many people are getting sick, going to hospitals, and dying. Unfortunately, there is no central planning for what we need to do. I bring this up because the country’s economic recovery is tied into COVID-19 cases. Until we reduce the number of cases, our economic recovery will be long and very bumpy. The more responsibility we all take now, the faster and more consistent our recovery will be. Positive action will also reduce the effects of other waves that are likely to happen.


Q2 2020 is over, at last. The massive stimulus money distributions will fuel the economy in Q3 2020. The employment rate is rebounding and stands at 11.1pc, down from the April peak of 14.7pc. However, there are still 15 million people looking for jobs, and the 3.7 million permanent layoffs are the highest in six years. Nondefense capital goods new orders, excluding aircraft, were up 2.3pc in May after dropping 14.3pc in April. That is still down 14pc from last year. May durable goods excluding aircraft, which is a proxy for business investment, rose 2.3pc. June car sales have also been recovering and are selling at an annual rate of 13 million. That is up from 12.2 million in May but down 25pc from last year. Existing home sales are down due to COVID-19, but building permits are up. Many economic indices are showing large percentage-gains due to their crazy low numbers. GDP is forecasted to be down more than 5pc this year, and most leading indicators are reflecting negative values through the year’s end. 


June ISM came in at 52.6pc, up from April’s 43.1. I like to look at the ISM’s metal-related manufacturing new orders and production sub-indices. Machinery, miscellaneous manufacturing,  electrical equipment, computers/electronics, petroleum, and coal moved up in June. Prime metals, transportation, and fabricated metal products were lower. 


The Shapiro Nonferrous Scrap Activity Index recovered in June. It was up 17pc from May, which is still down about 25pc from Q1. A good part of the upswing occurred in the auto sector. Aerospace was flat in June. HVAC, food service, recreation, and building and construction were also positive. This general positive trend will be greatly influenced by the preventative health actions we take now. 


China and the European Union took drastic action early to reduce their COVID-19 cases, and China’s economy has rebounded in Q2 2020. The Caixin and official PMI have now been over 50 and positive for the last two months, and the stimulus lending is now the highest it has been. Although car sales and home sales are down from last year, they were positive in Q2. European manufacturing has also recovered but is still in the negative range. 


Metal prices have had a good rebound this month. Aluminum prices have been stronger for three reasons. One is the increased talks of putting Section 232 tariffs on Canadian metal. This will be good for the three small US aluminum producers, but it will hurt the many manufacturers by raising their costs and making them less competitive. Second, there is strong demand in China. Third, the funds have been buying aluminum as a financial hedge. They get a premium for buying futures at a higher price than the spot price – called a contango – and that is occurring with aluminum futures. They can make a premium because they can borrow money cheaply and have low warehouse costs. 


Prime aluminum prices are up 4.5¢/lb from last month. Even though the demand for prime aluminum mill products is down 19pc from last year, recent activity has picked up. With the increased activity, there is more industrial scrap on the market. Consequently, prime scrap prices moved up 2¢/lb. Secondary aluminum prices moved up slightly as the auto sales started to climb. Copper prices moved up for the fourth consecutive month with a 10pc spike. This is a normal supply and demand reaction. Nickel prices were about even and the scrap stainless prices were up 3¢. The only loser this month was steel. The mills still have not recovered that much, scrap is plentiful, and prices dropped $40/gt.


We have a choice in this health/economic crisis. If 90pc of us wear masks and practice social distancing, we can get through phase two and get back to the new normal. If we fail, we will go back to phase one and face more pain and shutdowns. 


On a lighter note, as Willie Nelson said: “Live every day like it is your last. One day you will be right.” 


Be well. Be safe. Life is good. Family is precious.



Leave a Reply

Your email address will not be published.