PPI: Steel Gains Ground Versus Other Materials

Written by Peter Wright

In the last 12 months the competitive position of steel sheet has improved against aluminum, plastic and wood. 

This report is an analysis of Bureau of Labor Statistics data and is intended to provide subscribers with a view of where sheet steel stands in terms of pricing compared with aluminum, plastic and wood. The analysis includes some downstream products and a comparison of truck and rail transportation.

On Aug. 11, the BLS released its series of PPIs for more than 10,000 goods and services through July. For an explanation of this program see the end of this piece. The PPI data are helpful in monitoring price direction, though there may be a lag between the BLS reports and spot prices for steel products. The actual index 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 this data is useful in comparing the direction of price changes in the short and medium term, but tell us nothing about the absolute value.

Figure 1 shows the composite PPI of all commodities since January 2008. The index rose steadily for two and a half years through October 2018 before declining by 4.0 percent through February 2020. The crisis resulted in a 5.4 percent decline in March and April and a partial recovery in May through July. Overall, the composite was up by 2.9 percent in the 12 months of 2018, broke even in 2019 and was down by 3.1 percent in 2020 through July. 

Table 1 is a summary of each segment that we examine on a year over one-, two and three-year basis. The gain/loss pattern is shown by the color codes; we interpret rising prices as positive. We began this bimonthly analysis in January 2016 and the table was predominantly green at the 24-month and 36-month level through September last year. The table includes direct comparisons where possible between steel and competing products, also some other plastic products for which there is no direct steel comparison, and a measure of price changes for transportation, warehousing and storage. Some specific comparisons of steel and steel products with their competition are as follows. Please note the Y axes on Figures 3 through 7 are not to the same scale.

Figure 2 shows the year-over-year comparison of the price change of cold rolled steel sheet and flat rolled aluminum. The lines crossed in August 2018 when steel prices began to escalate faster than aluminum. This relationship reversed in July 2019 and for six months the price of cold rolled declined faster than that of aluminum sheet. In the first seven months of 2020, CR steel sheet has had a price decline of 5.5 percent as aluminum sheet has declined by 11.9 percent.  

Figure 3 shows the same comparison for steel tinware products and aluminum cans. Steel cans became much more competitive in May 2020, but have since lost some of that ground.

Figure 4 compares prefabricated metal with prefabricated wood buildings. In this analysis, steel buildings have shown price declines every month since May last year. The price of wood buildings has escalated every month in the same time frame. Since May 2019, the price of steel buildings has declined by 3.4 percent as the price of wood buildings has escalated by 2.5 percent.

Figure 5 compares the price changes of steel and plastic pipe, which moved in opposite directions to the detriment of steel in 2018. In 2019, the rates of price escalation had come back in line by July where they have stayed through July 2020.  

Figure 6 compares the changes in the price of truck and rail transportation. The escalation of truck transportation prices exceeded those of rail almost every month from January 2015 through April 2019 when the lines crossed. Trucking was affected more by the pandemic through May this year, but in July the rates of decline of truck and rail were the same.   

Figure 7 shows that the rate of change of the price of warehousing and storage declined steadily from April 2018 through March 2019 and was relatively stable though March this year before being negatively affected by the pandemic.  

The official description of this program from the 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 10,000 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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