Durable goods index slips amid general manufacturing weakness

Note: The Mechanical Tube price index is calculated using a blend of first point-of-sale import and domestic prices.

Manufacturing Performance

Data from the U.S. Federal Reserve indicates that the durable goods manufacturing output index fell in June by 0.1% after gaining 0.1% in the prior month. However, durable goods output was 0.8% above year-ago levels.

In June, durable goods manufacturing output was mixed, with decreases in motor vehicles and parts (-3.0%), nonmetallic mineral products (-1.2%), and machinery (-0.8%) more than offsetting gains in other sectors.

Tubing-intensive sectors, other than automotive and machinery, were positive compared to May, including aerospace and miscellaneous transportation equipment (+1.6%); furniture and related products (+0.6%); fabricated metal products (+0.2%); electrical equipment, appliances, and components (+0.1%); and miscellaneous manufacturing (+1.8%). Overall, motor vehicles and parts improved by 36.7% during the second quarter, making it by far the strongest growth sector in that time frame.

However, the June Manufacturing Report On Business®, as published by the Institute for Supply Management® (ISM®), indicated continued weakness in the manufacturing sector in general. In the latest report, it was noted that the Purchasing Managers’ Index (PMI®) stayed in contraction for the eighth consecutive month, dropping 0.9 percentage point to 46.0 in June. The June New Orders Index improved by 3 percentage points from the May level but remained in contraction at 45.6.

The Production Index reading of 46.7 represented a decrease of 4.4% compared to May’s figure of 51.1. A lower production index reading led to an increase in the backlog reading to 38.7, up from 37.5 in May.

In the report, Timothy R. Fiore, CPSM, CPM, chair of the ISM, noted that 71% of manufacturing gross domestic product contracted in June, down from 76% in May. Despite that improvement, more industries contracted strongly. The share of manufacturing GDP registering a composite PMI calculation at or below 45—a reliable barometer of overall manufacturing weakness—was 44% in June, compared to 31% in May.

Transportation equipment was the only tubing-intensive sector that reported growth in June, according to the ISM. Tubing-intensive industries reporting contraction were miscellaneous manufacturing; electrical equipment, appliances, and components; fabricated metal products; and machinery.

Domestic Pipe, Tube, and Steel Mill News

Husteel, part of South Korea’s Shinan Group, is investing $122 million into a greenfield ERW pipe plant in Splendora, Texas, to manufacture pipe products for oilfield applications. The mill’s size range will be 2-3/8 to 4-1/2 in. with a wall thickness of up to 0.394 in. This is Husteel's first facility in the U.S., expected to start production in 2025.

Bull Moose Tube, a U.S. maker of construction and manufacturing tubing products, announced that product is currently available from its new Sinton, Texas, facility.

Shipping and Imports

Preliminary overall pipe and tube shipments in June for the sectors of the market that we cover increased in May by about 3.5% as weaker domestic shipments were more than offset by an expected increase in import levels. These shipment numbers are subject to change as shipment data is finalized.

Compared to a year ago, preliminary June shipments were higher by 6.7%, with most of the growth benefiting domestic producers. Manufacturing and construction product shipments decreased by 1.0% in June from May, with both domestic shipments and expected imports falling. Manufacturing and construction product shipments were 1.7% below year-ago levels.

June preliminary shipments of mechanical tubing products most closely associated with manufacturing decreased by 10.7% from May and were 7.1% lower than year-ago levels as manufacturing activity continued to slow.

Outlook

The U.S. Federal Reserve raised its benchmark interest rate by 25 basis points at the July meeting, which was widely expected. Comments in the release suggested that the Fed was open to further monetary tightening if deemed necessary. The short-term rate is now at its highest level in 22 years. Despite the economic headwinds created by inflation and interest rate hikes, the economy remains strong. U.S. GDP in the second quarter grew at an inflation-adjusted rate of 2.3%, beating Q1 growth and the consensus forecast for Q2 by 0.3%.

Job growth remains solid. Much of the GDP growth from the consumer side this year was related to growth in spending on services, which helps explain the downward trend in manufacturing in spite of the strong economy.

Flat-Rolled Steel

According to data from SteelBenchmarker, the index for base hot-rolled band prices moved down to 121 in June from 127 in May. Steel price increase announcements and an outage at Steel Dynamic’s Sinton facility supported prices briefly, but the downward price trend has resumed for now.