Commodities Roundup: Automakers prepare to restart; steel capacity utilization plunges; silver draws interest

For the buyers and category managers out there, especially those of you deep in the weeds of buying and managing commodities, here’s a quick rundown of news and thoughts from particular commodity markets.

MetalMiner, a sister site of ours, scours the landscape for what matters. This week:

Auto sales continue to slump 

The automotive sector has been hard-hit by the coronavirus pandemic, which has led to stalled production and plummeting sales.

General Motors reported its first quarter deliveries declined 7% year-over-year.

Ford’s Q1 sales fell 12.5%, Fiat Chrysler’s Q1 sales dropped 10%, and Honda’s April sales fell 54.1%.

All three companies suspended production at plants around the world back in March in an effort to curb the spread of the coronavirus outbreak.

On Wednesday, GM announced plans were underway to restart most of its operations in the U.S. and Canada on May 18.

Steel capacity utilization rate falls to 51.1%

Similarly, steel production in the U.S. has taken a massive hit.

For the week ending May 2, the U.S. steel sector’s capacity utilization rate fell to 51.1%.

Production during the week totaled 1.14 million tons, down 39.4% compared with the same week in 2019.

Construction spending rises slightly

According to the U.S. Census Bureau, spending on construction in March reached a seasonally adjusted annual rate of $1,360.5 billion, up 0.9% from the previous month and up 4.7% from March 2019.

Through the first three months of the year, construction spending totaled $297 billion, up 6.7% from Q1 2019.

Housing starts, meanwhile, declined 22.3% in March compared with the previous month.

As for the Architecture Billings Index (ABI), it checked in at 33.3 in March, down from 53.4 the previous month (any reading greater than 50 indicates billings growth). The March reading marked the largest monthly decline in the ABI’s history.

Lynas restarts processing plant in Malaysia 

Lynas Corp., the largest rare earths miner and processor in the world outside China, announced earlier this week it would restart its processing operations in Malaysia.

Lynas had suspended operations at the facility on March 23, in compliance with the Malaysian government’s coronavirus-related movement restrictions.

In other Lynas news, the U.S. Department of Defense recently announced its intention to offer Lynas a Phase I contract for the building of a heavy rare earths separation facility in the U.S.

COVID-19 impact on sea freight 

Like nearly every other sector, shipping has also taken a significant hit amid the COVID-19 pandemic.

“Front and center is the demand destruction that started in Asia and has spread west with the virus,” MetalMiner’s Stuart Burns wrote.

“Demand has dropped precipitously while, at the same time, local restrictions on vessels forcing quarantining and denying crew changes have added to shipping delays and vessel rescheduling. Shipping capacity is now expected to fall by up to 20% on the Far East to North America route, and up to 25% in the second quarter of 2020 on the Far East to Europe route despite moves by Europe and the U.S. to ease lockdowns and get industry back to work.”

Citing research from Stratfor, Burns notes it may be a while before the shipping industry fully recovers.

“The firm predicts a tough few years for the shipping industry,” Burns wrote. “Without a vaccine, the firm sees potential for repeated COVID-19 outbreaks that will likely sustain a global recession for at least another year, restraining consumer spending in the process.

“Whether they are proved right that economic activity will not recover to pre-pandemic levels until at least 2022, and double-digit unemployment rates in developed economies will last well into 2021, remains to be seen. Talk of further trade wars between Washington and Beijing certainly don’t help the prospects for a bounce-back.”

SHFE, LME aluminum prices diverge

Elsewhere, Burns explained that the SHFE and LME aluminum prices have diverged over the last month.

“Investors have dumped LME and bought SHFE on the expectation demand is picking up much faster in China than the rest of the world,” Burns wrote. “Not surprisingly, the delta has attracted the arbitrage community, and traders have started buying LME and selling SHFE in the expectation the gap must narrow.

“With demand in China likely to be slow to recover as domestic markets wait for significant stimulus and export markets remain severely depressed, the SHFE premium is expected to narrow again soon. A surplus global supply market will weigh on prices generally and cap rises on the LME until such time as a significant improvement in demand becomes evident.”

Silver picks up investor interest 

In the world of precious metals, the widening gap between the gold and silver prices has yielded some new investor interest in the silver.

“The Financial Times reports on the dramatic rise in silver ETF holdings as investors bet on a rally in silver after the gap between gold and the industrial metal soared to its widest level in more than three centuries,” Burns explained.

“The article states that in March, the price of an ounce of gold was 125 times higher than the same amount of silver — a record going back to at least 1687.

“Since then, the gap has closed to about 113 times, as silver rose to $15 per ounce; Bank of America is reported as predicting silver could top $20 over the next year.”

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