Recovery coasts, but two factors likely to help it accelerate

Manufacturing Performance

The durable goods manufacturing index in November as compared to October increased by 1.5% but remains 4.3% below year-ago levels, according to the U.S. Federal Reserve. Most durable goods categories experienced increases month to month but gains were strongest in motor vehicles and parts (5.3%) and primary metals (3.8%). The only categories that had unfavorable comparisons to the prior month were nonmetallic mineral products (-0.1%); machinery (-0.5%); and electrical equipment, appliances, and components (-0.8%). Comparing November 2020 to November 2019 shows primary metals down by 8.2% while fabricated metal products and machinery manufacturing were down by 6.9% and 4.9% respectively. Motor vehicles and parts manufacturing was flat with last November.

The November Manufacturing Report On Business®, as published by the Institute for Supply Management® (ISM®), indicated that the Purchasing Managers’ Index (PMI®) was 57.5%, down 1.8% from the October reading of 59.3%. The New Orders Index was 65.1%, a decrease of 2.8% from the October reading of 67.9%. The Production Index registered 60.8%, off by 2.2% compared to the October reading of 63.0%. The Backlog Index continued to increase, registering a gain of 1.2% for the month to a reading of 56.9%. While all readings except employment continued to indicate manufacturing expansion, growth slowed in November. Difficulties related to COVID-19 continue to put a damper on activity. For more information, visit www.ismrob.org.

Domestic pipe, tube and steel mill news

U. S. Steel says it has exercised its option to acquire the remaining 50.1% stake in Big River Steel for $774 million, giving it ownership of one of the newest, most advanced flat-rolled mini- mills in the country. U. S. Steel also restarted the 1.5 million tons per year No. 4 blast furnace at its Gary works facility in early December. According to an Argus article, 19 million tons per year of steelmaking capacity had been taken offline as a result of demand destruction from the pandemic.

U.S. Steel celebrated the start-up of its first electric arc furnace the week of Dec. 7. The new furnace commenced its first arc, charged, and melted steel scrap in October.

Cleveland-Cliffs announced that it completed the purchase of substantially all of ArcelorMittal’s domestic steelmaking operations for approximately $1.4 billion. Following its acquisition of AK Steel, it is reported that the company now is the largest flat-rolled steel producer in North America.

Evraz N.A. issued layoff notices to 500 United Steelworkers in Canada in early December.

Finally, according to an article in the Sault Star, Tenaris is expanding its Sault Ste. Marie, Mich., campus to add welded pipe manufacturing to accompany its seamless operation.

Shipping & Imports

Overall pipe and tube shipments for the sectors of the market that we cover increased in October from September by about 1.1%. Imports increased by 9.2%, while domestic shipments declined by 1.2%. October shipments were about 33.5% below year-ago volumes. Year-to-date shipments were down by 29.6% in total, while domestic and import supply was down by about 22% and 44% respectively. Oil and gas product shipments were off by 59.1% year to year, while construction and manufacturing products were down by 9.9%.

In mechanical tubing products, October shipments increased by about 2.9% from September but were down by 14.4% from October 2019. Imports and domestic shipments both increased by 2.9% from September 2020 but were 36.9% and 7.8% below October 2019 totals.

Hot-rolled steel

According to data from the SteelBenchmarker, the index for base HRB prices increased to 91 in October from 82 in September. Data indicates that improvements in pricing have continued. This should not be a surprise. As noted earlier in this column, primary steel production is further below year-ago levels than are steel-consuming sectors. Also, scrap prices are increasing. In the coming months, the restart of the U. S. Steel furnace at Gary along with the startup of Big River’s second caster should help to align supply and demand, slowing the pace of steel price increases.

Outlook

Probably the most significant of recent events that will affect the outlook are new vaccines and a new federal budget. First, U.S. officials predict that vaccinations will lead to a return to prepandemic activities by fall 2021. Second, the federal budget approved on Dec. 27 included about $900 billion in economic stimulus.

Preston continues to track the CNN/Moody's Analytics Back-to-Normal Index, which is a combination of 37 metrics that measures the health of the U.S. economy. As of late December, the index is 82. Little has changed in this index since August. In the U.S., the number of COVID-19 cases continues to increase, and first-time jobless claims remain well above historical norms. For more information, visit cnn.com/business/us-economic-recovery-coronavirus.

The Federal Reserve Bank of Atlanta’s GDPNow model, which tracks inflation-adjusted gross domestic product based on available economic data for the current quarter, states that the U.S. economy is on pace for 10.4% growth for Q4 2020. That follows record 33.4% growth in Q3 and a record contraction of 32.9% in Q2. In late December, Goldman Sachs boosted its GDP forecast to 5% for the first quarter of 2021 and 5.8% for the full year. The U.S. housing market remains strong—November sales were up about 25% over year-ago levels.

Durable manufacturing continued to improve in November, although growth slowed. Machinery manufacturing, a more pipe-and-tube-intensive sector than many other sectors, was one of the few segments that declined slightly in November. Oilfield activity continues to improve and is forecast to grow further in 2021.

From a pipe and tube perspective, we expect some growth in shipments for 2021 overall as activity continues to recover and inventories are rebuilt.