The USA has installed the newly-elected legislative branch in the Senate and House of Representatives. The Democrats are still in control of the Senate while the Republicans have taken a slim majority in the House of Representatives, although there is an unhappy split between the conservative and moderate wings which should make governing a challenge. The fruits of this split have been seen in the inability to resolve the current funding needs of the government.
GDP in the fourth quarter surprised on the upside, with growth coming in at 2.9%. This puts the initial 2022 growth rate at 2.1%, coming off a slow early part of the year. This represents two strong quarters in a row, in the face of aggressive Federal Reserve interest rate increases.
Many are forecasting little to negative growth in the USA for 2023, with many predicting a mild recession.
Up to this point, US consumers have shown resilience in their spending, but increased interest rates are expected to dampen expenditure in the near term. Housing activity has slowed significantly and used automobile prices are starting to drop rapidly. Increased interest rates seem to have tempered inflation, with the 2022 annual rate settling at 6.5% and December showing a significant slowing of cost increases.
As terminal markets soar, domestic aluminium scrap markets are showing no bounce at the start of the year. The US Midwest aluminium premium has been running up in the face of tepid demand and reduced freight costs; the only driver seems to be the increase in carrying costs. The premium has risen more than 40% in the last two months, pushing up the all-in aluminium price by nearly 15% since our previous Mirror. This rapid increase flies in the face of domestic aluminium mill demand, which has been poor since the end of last year. What looked like end-of-year inventory alignment by mills has fallen into a much lower scrap appetite. Rolling mills and billet cast houses are mostly out of the spot markets, with billet producers very slow. With that, scrap spreads for almost all mill grade items have widened in a buyer’s market. The secondary ingot side is still stable, with flat ingot prices and reasonable demand.
Auto sales for 2022 came in at 13.7 million units, well below those heady days of 17 million units per year. It is uncertain how badly interest rate hikes will dampen auto sales in 2023, but no-one is expecting a busy year.
Copper and brass mills are all busy, with spreads still tight in a much higher terminal market which has been buoyant over the reopening of China.
Export markets are active, with both copper scrap and secondary aluminium scrap finding ready homes.