SMU Data and Models

SMU Key Indicators Somewhat Improved, Outlook Subdued

November 16, 2022

Monthly Key Market Indicators (KMI) have steadily improved since reaching their most recent low in July, though steel buyer sentiment recently tumbled to a 26-month low, according to the latest analysis by Steel Market Update. Positive and neutral indicators have increased, while negatives have eased.

Despite some recent improvements, present headwinds are still notable. The economy has shown some continued signs of strength. Consumer confidence has improved, driven by surprise gains in GDP and employment totals. More recently, the Fed is reportedly going to slow rate hikes in its battle to tame inflation. But that’s because there’s enough pain in the market after benchmark lending rates have been driven up by four percentage points in just nine months.

Still, consumers and businesses have remained cautious about spending. Decade-high inflation and ongoing supply disruptions continue to weigh on the economy.

SMU’s KMI include data on the economy, raw materials, manufacturing, construction, and steel sheet and long products. They offer a snapshot of current sentiment and the near-term expected trajectory of the economy. Markers for the Present Situation had been slowly rising after positive indicators fell in July to their lowest totals since mid-2016.

In the latest data, just eight of the 38 Present Situation indicators are negative, falling three points month-on-month (MoM) and eight points since June. The positive position also edged down but neutral indicators rose over the same period. The neutral indicator grew by four points to 17, while the negative indicator slipped just one point to a reading of 13.

SMU’s Present Situation and Trends analyses in the table below are based on the latest available data as of Nov. 16. Readers should regard the color codes in the “Present Situation” column as a visual summary of the current market condition. The “Trend” columns are color-coded to give a quick visual snapshot of the market’s direction. All data included in this table was released within the past month. The month or specific date to which the data refers to is shown in the second column from the far right. Click to expand the table below.

Present Situation

SMU’s Present Situation indicators below continue to highlight the uncertainty of the domestic market. Though negative markers remain, positive indicators continue to surprise.

Through October, 21.1% of the marketplace is negative, a 7.9 percentage point decrease MoM, further distancing itself from June’s reading of 42.1%, its worst total since the height of the pandemic in July of 2020. Presently, 34.2% of the market is positive, 2.6 percentage points lower when compared to the month prior, while 44.7% of the market is neutral – broadly still watchful.

With more neutral and fewer negative indicators, Present Situation indicators are now 78.9% as neutral-to-positive, according to SMU’s assessment of key market indicators, a noticeable improvement from 71.1% one month ago.

Our monthly assessment of the Present Situation since January 2010 on a percentage basis is shown in Figure 1.

KMI Figure1

Trends

SMU’s Trends indicators, though improved of late, have remained on a considerable negative run. The dynamic points to a lack of long-term clarity resulting from the current headwinds facing the US economy.

It is important to note that most values in the Trends columns are three-month moving averages (3MMA) to smooth variations in monthly data. Note that in many cases this is not October or November data, but data that was released in October and/or November for previous months. Compared to month-ago data, the negative trend declined from 55.3% to 52.6% in November. The neutral trend rose by 2.6 percentage points to a reading of just 5.3%. The positive trend is unchanged, holding at 42.1% over the same span.

The continued negative turn places November’s reading well behind the high of 81.6% seen in June 2021. Figure 2 shows the recent movement of the trends and historical data for comparison.

KMI Figure2

The SMU Steel Buyers Sentiment Index is a measure of the current attitude of North American steel buyers regarding their company’s chances for success in today’s market. The single value of the current sentiment index fell to -8 in early March 2020, a 66-point drop in just a month as the pandemic devastated the economy. It rebounded to a healthy +82 by late March but has largely trended down since. Since July’s two-year low of 43, the reading has edged up, though it remains underwhelming at 54 as of Nov. 10.

Figure 3 shows the 3MMA of the index since 2010. A reading above the neutral point of zero indicates that buyers have a positive attitude toward their prospects. Steady-to-declining demand and falling steel prices appear to be pressuring the Steel Buyer’s Sentiment Index to remain low.

KMI Figure3

By David Schollaert, David@SteelMarketUpdate.com

David Schollaert

David Schollaert is a senior analyst for Steel Market Update. David joined SMU after more than a decade in the metals and mining industry in a myriad of different roles. Much of his early experience and expertise were within the coverage and analysis of steel-making raw materials and served previously as senior editor of the CRU Prices Service. Most recently, however, before his return to market analysis, David held roles as a metals buyer and an operations manager for raw material suppliers. Based in CRU’s Pittsburgh office, David can be reached at david@steelmarketupdate.com or 724-720-1008.