Final Thoughts

CRU Aluminum: Macro Trends Top of Mind Entering Q2

Written by Matthew Abrams

Fresh off another rate hike from the Fed, US macro data came in mixed during the month of March.


The final update for GDP in Q4 2022 showed 2.6% growth, which was down slightly month over month and below expectations. Consumer spending has also been revised down consistently over each update on the Q4 figures. A positive inflation update last Friday, March 31, boosted equity markets and could perhaps work to improve sentiment after the uneasiness of the last few weeks due to liquidity concerns stemming from the banking crisis.

The lag of interest rate hikes and their effect on the real economy takes 18-24 months on average, which makes judging current conditions difficult. Consumer loans, in the form of credit cards as a percentage of personal income, have been growing since the start of 2022 and have not been affected by higher borrowing rates. Personal savings rates have strengthened over the last few months but are still at historically low levels. Delinquencies jumped up just slightly. There was nothing alarming in the last credit report, but it will be a key gauge of consumer health going forward.

Elsewhere in the world, all eyes are still on China’s comeback after the Covid-19 induced lockdowns. Progress has been slightly slower than expected. Some data suggests private consumers in China are still hesitant to use credit despite lower interest rates. The most recent data release has been more positive. The gauge used to measure the activity of China’s services sector shot up in March. Europe, however, is still battling inflation. Headline inflation fell, but core inflation hit an all-time high.

Many aluminum-intensive industries are directly related to consumer spending. Think auto, housing, and consumer durables. Such end markets make these macro trends vital to follow.

Broadening the lens to gauge long-term demand

With the macro data bouncing around each month from positive to negative, forecasting and looking ahead to the rest of 2023 is a challenge. The important questions range from the possibility of recession to how persistent inflation will be. As for current banking problems, could they rival the Global Financial Crisis (GFC) in scale? Short-term trends are undoubtedly important to those managing their day-to-day business. But for the industry overall, long-term growth potential over the next five years is what will drive the industry forward.

In that sense, the outlook is much brighter than the near term. While travel has picked up post-pandemic, many have wondered how long this trend would continue. The tourism and travel industry have recently sent very clear signs that they don’t expect this to be a flash in the pan. In response to the recent boom, airplane build rates have increased consistently and substantially. Also, the pipeline for new hotels globally has reached a new high. Auto build rates are still well below the pre-pandemic peak because inventories have yet to recover.

Even for the much-discussed housing sector, there are signs that the slowdown will not be nearly as drastic as what we saw 2008. For one, the market is stable as prices adjust to higher interest rates throughout the country. The West has seen new home prices fall. But in other regions, such as the Northeast, they are still climbing. Housing inventory has gained some traction but is far from worrisome levels. New starts and permits, meanwhile, despite falling for more than six months heading into 2023, are still around historical averages. Another future demand indicator is the ratio of new households started to housing completions for a year. Omitting the pandemic-induced recession of 2020, new households have outpaced the housing market almost every year since 2010, which points to more supply needed long term. For reference, housing completions outpaced household formations in the four years leading up to the GFC.

Japan to ban steel and aluminum exports to Russia

The Japanese government is prohibiting steel and steel products shipments to Russia as well as aluminum and aluminum products. The ban, which comes into force on April 7, is Tokyo’s latest response to Russia’s invasion of Ukraine in February of last year. The ministry of the economy, trade, and industry (Meti) first flagged the impending measure on Feb. 28.

Other prohibited items include forging equipment, construction equipment, steam boilers, generators, transport vehicles, aircraft and ship engines, electronic equipment for navigation, aircraft, spacecraft, flight radios, optical and photographic equipment, optical fiber, fiber optic cable, measuring instruments, precision instruments, binoculars, and children’s toys. According to Russian news agency Tass, Japan’s sanctions now affect about 1,000 individuals and 100 organizations in Russia.

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By Matthew Abrams, CRU Research Analyst,

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