PPIs Show Steel, Aluminum Prices Recover at a Differing Pace

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 with an acceleration through April, when the bottom was reached. Overall the composite was up by 2.9 percent in the 12 months of 2018, but is currently down by 0.4 percent year to date since the rebound began this May. 

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 bi-monthly analysis in January 2016 and the table was predominantly green at the 24-month and 36-month level through September 2019. Since December, eight of the 16 sectors have been in decline at the 12-month level. The table includes direct comparisons where possible between steel and competing products, 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 priced 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. Significant variations have been seen throughout 2020, however, cold rolled steel sheet has recovered at a faster pace compared to flat rolled aluminum through November at negative 5.1 percent versus negative 8.1 percent, respectively.

Figure 3 shows the same comparison for steel tinware products and aluminum cans. Since 2016 there has been no relationship between the price change of either type of can with their raw materials prices. This year has brought about vastly varying changes as aluminum cans have recovered to a positive 2.2 percent, while steel tinware products plummeted through April to a negative 11.8 percent, but have since rebounded to a negative 4.5 percent.

Figure 4 compares prefabricated metal with prefabricated wood buildings. In this analysis, steel lost ground from a competitive point of view in 2018 and made it up in 2019. Similar to Figure 3, prefabricated steel buildings fell to a negative 3.1 percent in June but have since rallied to a positive 9.0 percent through November, outpacing prefabricated wood buildings, which now stand at a positive 5.4 percent. The price of steel buildings has escalated since September by 9.0 percent, while the price of wood buildings has lost ground, edging down 0.5 percent from 5.9 percent in October to 5.4 percent in November.      

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 had stayed through February 2020. The global pandemic had a greater impact on steel pipe, dropping to a negative 8.0 percent through September, but has rallied to a negative 0.6 percent in November. By comparison, plastic pipe has rallied by more than 14.0 percent since September to 16.5 percent through November.

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 saw negative price escalation since August last year as rail prices continued to increase. Both experienced additional decreases through Q3 2020; however, trucking rallied to a positive 2.2 percent in November while rail fell to a negative 0.7 percent during the same period.

Figure 7 shows that the rate of change of the price of warehousing and storage declined steadily from April 2018 through March 2019. Despite largely holding stable throughout 2019, warehousing and storage were noticeably impacted by the global pandemic, falling to a negative 2.3 percent through June. They have since steadily rebounded to a positive 1.5 percent to date.

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.