Commodities Roundup: Supply chain woes; Oil price gains; Housing supply falls short of demand

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Here’s a quick rundown of news and thoughts from particular commodity markets, which this week includes coverage of oil prices, housing supply and rising shipping rates.

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

European aluminum market

The European aluminum market is dealing with a number of challenges, MetalMiner’s Stuart Burns explained this week.

Like in North America, end users are facing supply squeezes.

“Automotive manufacturers, in particular, are struggling to get enough material,” Burns wrote. “This comes despite some car output slowing because of a lack of semiconductors. Hard alloy 5000 series sheet deliveries are out to July-August production at some plants. Extended lead times and rising LME prices — now above $2,200 per metric ton this week — are encouraging distributors to overorder. In short, this is further exacerbating the problem.”

Oil price recovery

As we've noted previously, the oil price has recovered steadily in recent weeks, continuing the long-term recovery since the demand destruction caused by the Covid-19 pandemic.

This week, the Brent crude price rose above $66 per barrel.

“A recovery in demand has stoked oil prices,” Burns wrote. “That demand surge is largely coming from the prospects of an acceleration in transport activity as vaccine programs roll out.”

The oil price could rise further still.

“Bank of America analysts quoted in the same post said underinvestment in supply could send oil as high as $100 a barrel in the next five years,” Burns wrote, citing the Financial Times. “However, the analysts added such a surge would probably be temporary. They forecast the Brent crude oil price is likely to average between $50 and $70 per barrel between now and 2026.

“The temptation to cash in such a steep rise would be too much for oil producers running hefty budget deficits. It would likely encourage a return of at least parts of the US shale industry, lured by price levels above $65/barrel for any sustained period.”

In other oil news, energy ministers met virtually during the 14th OPEC and non-OPEC Ministerial Meeting on Thursday, during which ministers agreed to continue March production levels into April, save for Russia and Kazakhstan. The two countries will be allowed to increase production by 130,000 and 20,000 barrels per day, respectively.

Saudi Arabia previously announced a two-month reduction of 1 million barrels per day beginning Feb. 1. The kingdom then extended the reduction into April.

Steel capacity utilization moves up

The US steel sector’s capacity utilization rate rose to 77.2% for the week ending Feb. 27, the American Iron and Steel Institute (AISI) reported.

Total steel output during the week reached 1.75 million tons, up 0.2% from the previous week but down 7.0% year-over-year.

Supply chain woes

Earlier we touched on European buyers’ challenges vis-à-vis securing aluminum supply.

But supply chain woes are, of course, not just limited to aluminum (as we'll explain later vis-à-vis housing supply). And as Burns noted this week, some supply chain problems have only gotten worse.

“According to the Financial Times, the cost of shipping goods from China to Europe has more than quadrupled in the past eight weeks,” Burns wrote. Costs have hit record highs as a result of a shortage of empty containers disrupts global trade.

“The post states the cost of shipping a 40-foot container from Asia to northern Europe has increased from about $2,000 in November to more than $9,000, quoting shippers and importers.

“MetalMiner’s own research has found the worst increases are on the China to US West Coast and Northern Europe routes. Other origins, such as India, have doubled but not tripled since spring 2020, with the largest increase coming in the last 3-4 months.”

Strong February for US auto sales

As various sectors continue to strive toward reaching pre-pandemic sales levels, the US automotive market is showing some signs of recovery.

Last summer, dealers faced a shortage of inventory, akin to the housing supply shortage prospective buyers are dealing with now (as we'll note shortly).

According to J.D. Power and LMC Automotive, US auto sales were forecast to rise by 3.3% in February on a year-over-year basis (when adjusting for differences in the number of selling days).

Ford Motor Co. saw its US retail sales overall fall 1.8% year over year. However, Ford trucks proved popular in February. Truck sales rose 10.2% year over year.

Construction spending rises

Meanwhile, US construction spending in January rose 1.7% from the previous month, the Census Bureau reported. January spending reached a seasonally adjusted annual rate of $1,521.5 billion, or up 5.8% year-over-year.

Private residential construction spending rose 2.5%.

However, the Architecture Billings Index remained in contractionary territory. The index tallied a reading of 44.9 in January. While up from the previous month’s 42.3, any reading less than 50 indicates billings decline.

In the housing market, pending home sales in January fell 2.8% from the previous month. Lawrence Yun, chief economist for the National Association of Realtors, said sales fell due to inventory not matching market demand.

However, despite the housing supply situation, January pending sales increased 13% when compared with January 2020.

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