AMSCI NEWSLETTER October 2024
October 2024 Market Update
Members of the Federal Reserve, prior to reducing interest rates by a half-point in September, expressed somewhat varying views about the state of the U.S. economy.
While “almost all participants saw upside risks to the inflation outlook as having diminished, while downside risks to employment were seen as having increased,” there were some differences in analyses of the labor market and overall economy, according to the minutes of the Federal Open Market Committee’s (FOMC) Sept. 17-18 meeting. “A couple of participants … did not perceive an increased risk of a significant further weakening in labor market conditions,” the minutes noted.
The target range for the Federal Funds Rate had been 5.25 to 5.5 percent for more than two years going into the meeting, and a reduction of at least a quarter-point was considered a near certainty. The minutes stated that “a substantial majority of participants supported lowering the target range for the federal funds rate by 50 basis points” – partly to “help sustain the strength in the economy and the labor market while continuing to promote progress on inflation” – but “some participants” preferred a cut of half that size because “inflation was still somewhat elevated while economic growth remained solid and unemployment remained low.”
Fed bankers also discussed the importance of messaging, stressing that the rate cut should be regarded as a move toward “normalization” of monetary policy, not as a reaction to perceived concerns about an impending recession.
“Participants emphasized that it was important to communicate that the recalibration of the stance of policy at this meeting should not be interpreted as evidence of a less favorable economic outlook or as a signal that the pace of policy easing would be more rapid than participants’ assessments of the appropriate path,” the minutes recorded.
In the end, all FOMC members but one voted for the half-point reduction, with the dissenter favoring a quarter-point cut.
The back and forth could provide clues into how the committee will vote when it next meets on Nov. 6-7. Another rate cut is thought to be possible, but much will depend on inflation and jobs data that is released before then.
In September, the Consumer Price Index (CPI) was 2.4 percent higher than a year earlier, the smallest 12-month increase since February 2021, according to the Bureau of Labor Statistics. This was down slightly from 2.5 percent inflation the previous month. On a month-to-month basis, prices increased 0.2 percent, the same as from July to August.
“The index for shelter rose 0.2 percent in September, and the index for food increased 0.4 percent,” the bureau reported. “Together, these two indexes contributed over 75 percent of the monthly all items increase.”
Energy costs were down 6.8 percent from September 2023, with gasoline falling 15.3 percent and fuel oil dropping 22.4 percent.
The Fed’s target for inflation is 2 percent. In June 2022, inflation hit a recent high of 9.1 percent.
The bureau also reported that the economy added 254,000 jobs in September, the largest number in six months, with notable gains in food services and drinking places, health care, government, social assistance, and construction. The unemployment rate has decreased a tenth of a point in each of the past two months and is now at 4.1 percent.
While the moderate inflation number makes a November rate cut possible, the strong hiring numbers likely make another 50 basis point reduction – and maybe even a 25 point cut – less probable, especially in light of comments by Fed Chair Jerome Powell on Sept. 30, prior to the September jobs report, that “This is not a committee that feels like it is in a hurry to cut rates quickly.”
This CPI report was the last one before the central bank’s November meeting, though there are other measures of price trends. October jobs data will be released on Nov. 1.
Another closely watched economic measure – consumer confidence – is trending negative, according to two organizations. The Consumer Confidence Index from The Conference Board fell 7 percent from August to September to “near the bottom of the narrow range that has prevailed over the past two years,” according to the board’s chief economist.
“September’s decline was the largest since August 2021 and all five components of the Index deteriorated,” the chief economist said. ‘Consumers’ assessments of current business conditions turned negative while views of the current labor market situation softened further. Consumers were also more pessimistic about future labor market conditions and less positive about future business conditions and future income.”
The Index of Consumer Sentiment from the University of Michigan Surveys of Consumers, meanwhile, dipped 1.7 percent from September to October, though the surveys’ director noted that this was “well within the margin of error.”
“While inflation expectations have eased substantially since [inflation peaked in June 2022], consumers continue to express frustration over high prices,” the director said, adding, “With the upcoming election on the horizon, some consumers appear to be withholding judgment about the longer term trajectory of the economy.”Confidence among manufacturers continues to show weakness, as the Institute for Supply Management’s Purchasing Managers Index was unchanged from August to September, remaining at a level indicating contraction in the sector for the sixth consecutive month and the 22nd time in the past 23 months.
Five industries reported growth in September, while 13 reported contraction.
“Demand remains subdued, as companies showed an unwillingness to invest in capital and inventory due to federal monetary policy – which the U.S. Federal Reserve addressed by the time of this report – and election uncertainty,” the chair of the institute’s Manufacturing Business Survey Committee said.
Housing starts in September were essentially unchanged from August and from September 2023, according to the Census Bureau and the Department of Housing and Urban Development. Existing home sales in August slipped 2.5 percent from July and were down 4.2 percent from a year earlier, the National Association of Realtors reported.
“Home sales were disappointing again in August, but the recent development of lower mortgage rates coupled with increasing inventory is a powerful combination that will provide the environment for sales to move higher in future months,” the association’s chief economist said.
The median existing home price in August was 3.1 percent higher than in August of last year.
The Dow Jones Industrial Average closed at 43,275.91 on Oct. 18, up 14.8 percent on the year and 4 percent in the month since the Federal Reserve announced its interest rate cut. The S&P 500 Index was at 5,864.67 on Oct. 18 for a year-to-date gain of 23 percent. The S&P matched the Dow’s 4 percent growth since the Fed announcement.
The dollar on Oct. 18 was trading at 0.92 euros, 0.77 pounds, 149.59 yen and 7.1 yuan.
October Steel Shorts 2024
Nippon Steel to Sell Stake in Alabama Plant Upon Approval of U.S. Steel Purchase
Nippon Steel said in October that, if the $15 billion planned purchase of U.S. Steel goes through, it would essentially give away its 50 percent stake in a plant in Calvert, Ala.
Nippon jointly operates the Alabama plant with ArcelorMittal and provisionally plans to sell its share to its partner for $1, Reuters reported, noting that Nippon said the sale would be intended “to proactively address any antitrust concerns.”
“We have determined that the share sale is the most assured path to receiving timely regulatory approval for the U.S. Steel acquisition,” Nippon Managing Executive Officer Shigekazu Iwamoto said.
The Alabama plant produces 4.7 million metric tons of steel sheets a year, while U.S. Steel has a capacity of almost 16 million metric tons, according to Reuters.
The deal is opposed by many lawmakers in both parties, who have cited concerns about jobs and national security. President Biden, Republican presidential nominee Donald Trump and Vice President Kamala Harris, the Democratic nominee for president, have all announced their opposition to the purchase, which is currently under review by the Committee on Foreign Investment in the United States (CFIUS).
Saudi Arabia Project Claiming 20% of World’s Steel
A construction project in Saudi Arabia is reportedly using one-fifth of the world’s steel and is expected to maintain a high consumption rate for many years.
The Neom project is a $500 billion development that includes residential, manufacturing, sport, tourism, technology and other sectors across 10,200 square miles and bills itself as “the land of the future.” It was launched in 2017.
“We are 20 percent of the global steel market,” Neom Chief Investment Officer Manar Al Moneef said at the Global Logistics Forum in Riyadh in October, according to Newsweek.
Global steel consumption in 2023 was about 1.8 billion metric tons, according to the World Steel Association, twenty percent of which would be 360 million metric tons. Saudi Arabia ranked 20th in the world in crude steel production in 2023 at just under 10 million metric tons.
Global Steel Demand to Contract This Year, Association Says
Global steel demand is expected to decrease by 0.9 percent this year, according to the World Steel Association.
“2024 has been a difficult year for global steel demand as the global manufacturing sector continued to grapple with persistent headwinds such as declining household purchasing power, aggressive monetary tightening, and escalating geopolitical uncertainties,” Martin Theuringer, the chair of the association’s Economics Committee, said.
China’s consumption of steel in 2024 is forecast to fall by 3 percent, as a result of “the ongoing downturn in the Chinese real estate sector.”
An additional decline of 1 percent is projected for China in 2025, though the association noted that “There is a growing possibility of more substantial government intervention and support for the real economy, which could bolster Chinese steel demand in 2025.” CNBC reported that, “More than 50 cities across China have introduced policies to boost the real estate market, according to state media, citing the housing ministry.”
Steel demand in India is expected to increase by 8 percent over 2024 and 2025, while consumption in the developed world falls by 2 percent this year.
Canada Imposes 25% Tariffs on Chinese Steel, Aluminum
New Canadian tariffs of 25 percent on Chinese steel and aluminum imports went into effect on Oct. 22.
Canadian Prime Minister Justin Trudeau announced the levies in August. The tariffs now match those imposed by the United States on imports of the metals from China.
“Chinese overcapacity floods the international market with cheap steel and aluminum,” Trudeau said on multiple social media platforms the day the tariffs went into effect. “Their unfair trade practices put Canadian workers at a disadvantage – and we’re taking action.”
Canada also imposed 100 percent tariffs on Chinese-made electric vehicles.
Canadian companies can seek remission of the tariffs in certain “exceptional circumstances,” the country’s Department of Finance said.
The tariffs will be reviewed for possible renewal after one year.
CUSTOMS CORNER
Steel
Cargo Systems Messaging Service (CSMS) #62582900 establishes, effective November 21, 2024, a new requirement to disclose the country of melt and pour on the Entry Summary through the Importer’s Additional Declaration Type Code 08 (Steel Melt and Pour Country Detail) on the 54-record. Disclosure is required for steel articles subject to Section 232 from all countries, and for derivative steel products only for products of Mexico.
According to the CSMS message, “Country of melt and pour refers to the original location where the raw steel is first produced in a steel-making furnace in a liquid state and then poured into its first solid shape. The first solid state can take the form of either a semi-finished product (slab, billets, or ingots) or a finished steel mill product. The location of melt and pour is customarily identified on mill test certificates generated at each stage of the production process and maintained in the ordinary course of business.” Steel mill certificates are required to be submitted as part of the entry for all products in HTSUS Chapter 72 and headings 7301 to 7307. The Message also includes links to the lists of steel articles and of derivative steel products covered.
https://content.govdelivery.com/bulletins/gd/USDHSCBP-3baf074?wgt_ref=USDHSCBP_WIDGET_2Aluminum
The new requirement to disclose the countries of smelt, secondary smelt, and cast for aluminum and aluminum derivative articles subject to Section 232 that are products of Mexico is implemented on the Entry Summary using the Importer’s Additional Declaration Type Code 07 (Aluminum Smelt and Cast Country Detail). In addition, a Certificate of Analysis must be provided for such articles. Exclusion from Section 232 duties is available only if the smelt and cast countries are other than China, Belarus, Iran, or Russia. These requirements were effective July 10, 2024.
CSMS Message # 62063449 also notes that any products where any amount of primary aluminum was smelted or cast in Russia are also subject to 200% duties under the previously announced sanctions on Russia.
https://content.govdelivery.com/bulletins/gd/USDHSCBP-3b30359?wgt_ref=USDHSCBP_WIDGET_2
CSMS Message #55438432 lists the covered aluminum and aluminum derivative products. It also provides definitions of the primary and secondary countries of smelt and cast.
https://content.govdelivery.com/accounts/USDHSCBP/bulletins/34dec60
ITA Import License Requirements
The International Tade Administration of the U. S. Commerce Department requires import licenses for basic steel and aluminum products covered by Section 232 (although not for derivative articles.) While these licenses require melt and pour (steel) and smelt and cast (aluminum) information, CBP only requires a valid license number to be filed with each Customs entry, not a copy of the license itself. CBP does not have automatic access to the melt and pour or smelt and cast information on the license. https://www.trade.gov/us-steel-industry-import-licensing
Steven W. Baker
AMSCI Customs Committee Chair
swbaker@swbakerlaw.com
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AA Metals, Inc.
Contact: Maria Villasmil, VP of Supply Chain
Phone: (407) 377-0246
E-mail: mvillasmil@aametals.com
We are AA Metals, Inc, one of North America’s largest master distributors of quality aluminum and stainless products. Through worldwide sourcing, we provide our customers with high-quality solutions at competitive prices. Further, we leverage strategically located distribution facilities worldwide to maximize the storage of countless products, from coils to treadplates. We have over 500 customers, and we partner with dozens of mills on a global scale, sourcing our supplies, time, and opportunities from anywhere we find it. We believe in people, and this allows our worldwide presence to expand and include numerous warehouses and our own factory.
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