Steel Sheet Improved Competitiveness Against Aluminum by 19.4%

Written by John Packard

Each month the Bureau of Labor Statistics (BLS) puts out its series of producer price indexes, for thousands of goods and materials. For an explanation of this program see the end of this piece. The latest release last Friday reported results through May.

We run this analysis every three or four months to give readers an opportunity to become aware of any changes in the competitive position of steel against other materials and rail vs truck transportation. The PPI data are helpful in monitoring the price direction of steel and steel products against competing materials and products.

As far as we at SMU can tell from comparison with known transaction prices, these PPI are a good representation of the real world. However our observation is that the actual values of the PPIs of different products cannot be compared with one another because they are developed by different committees within the BLS. We believe that this data is useful only in comparing the direction of prices in the short and medium term.

The May report from the BLS began as follows; The Producer Price Index for final demand rose 0.5 percent in May, seasonally adjusted. Final demand prices fell 0.4 percent in April and advanced 0.2 percent in March. On an unadjusted basis, the final demand index declined 1.1 percent for the 12 months ended in May, the fourth straight 12-month decrease. In May, the increase in the final demand index can be traced to prices for final demand goods, which rose 1.3 percent. The index for final demand services was unchanged. Within intermediate demand, prices for processed goods climbed 1.0 percent, the index for unprocessed goods jumped 3.3 percent, and prices for services fell 0.5 percent.

For the purpose of this report, SMU has extracted comparative statistics for sheet steel, aluminum and plastic products and truck and rail transportation. Table 1 is a summary of each category on a year over one, two and three year basis.

Our analysis of the PPI data shows that commodity prices as a whole declined by 7.3% in 12 months through May and were also down on a two and three year comparison. In fact commodity prices were back to where they were over four years ago in January 2011. A rising $ will put downward pressure on commodity prices and the demand side of the equation is exacerbating currency effects at this time.

Of particular interest in this analysis is the increase in the PPI of aluminum sheet and strip as steel declines. In our last analysis in January aluminum was up by 7.3% y / y and in May was up by 1.8%, (headaches for Ford!)  Steel sheet has had a 19.4% improvement in competitiveness in the last 12 months against aluminum.

Steel cans have experienced a 2.5% PPI improvement against aluminum cans in the last 12 months. The PPI of plastic products performed the same as in our January report with a decrease in the price of plastic piping but the prices of plastic construction and transportation products continued to increase year over year.
Table 1 also shows price changes for truck and rail transportation and indicates that highway delivery has lost ground to rail in the last 12, 24 and 36 month periods.

The official description from the Bureau of Labor Statistics (BLS) reads as follows:

The Producer Price Index (PPI) is a family of indexes that measure the average change over time in the prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI). CPIs measure price change from the purchaser’s perspective. Sellers’ and purchasers’ prices can differ due to government subsidies, sales and excise taxes, and distribution costs. More than 9,000 PPIs for individual products and groups of products are released each month. PPIs are available for the products of virtually every industry in the mining and manufacturing sectors of the U.S. economy. New PPIs are gradually being introduced for the products of industries in the construction, trade, finance, and services sectors of the economy. More than 100,000 price quotations per month are organized into three sets of PPIs: (1) Stage-of-processing indexes, (2) commodity indexes, and (3) indexes for the net output of industries and their products. The stage-of processing structure organizes products by class of buyer and degree of fabrication. The commodity structure organizes products by similarity of end use or material composition. The entire output of various industries is sampled to derive price indexes for the net output of industries and their products.

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