Strong headwinds are working against the resilient US economy. The legislative branches barely passed short-term funding to operate the government, kicking the can down the road for another 45 days. And at the time of writing, approximately 25,000 automotive workers are out on strike, equivalent to around 17% of the United Auto Workers (UAW) workforce. The union is asking for increased pay, a shorter working week and improved retirement benefits. The domestic automotive industry has been very healthy and profitable for several years, and so there is some expectation that concessions will be needed to get people back to work.
Inflation is slowing, keeping the Federal Reserve from further raising rates. The employment situation remains good, with the unemployment rate still below 4%. GDP growth remains around 2%, with the expectation that this level will be maintained for the balance of 2023.
The year’s increasing interest rate environment has helped to slow manufacturing activity in the USA. Although auto sales had been expected to increase in 2023, the above-mentioned strike and interest rate environment may reduce forecasts. New car inventory levels are rising back to the levels seen prior to the days of COVID-related supply chain issues. Meanwhile, there has been a more recent decline in home sales as climbing mortgage rates have impacted affordability.
On the metals front, terminal markets seem to be relatively range-bound. LME aluminium prices remained in a very tight range all summer whereas the regional premium continued its slow, steady decline as demand has not improved. Scrap spreads for most mill items have not changed much and demand is satisfactory. UBC demand, on the other hand, remains very poor, with many mills sitting on the sidelines as they and their customers destock.
Extrusion scrap demand is very hit and miss, with historically wide spreads. Prospects of a better 2024 in the extrusion business seem to be diminishing. This is the time of year when dealers negotiate annual contracts with the aluminium mills but there has been a very slow start to this process, with no-one wanting to commit to spreads just yet.
Secondary scrap demand is better than one would expect given the strike situation, but only for certain items. The high-volume automotive ingot price dropped as the summer progressed - and at a rapid rate more recently. There may be some panic selling as the automotive strike starts to hit producers.
Copper spreads are a little wider, even as terminal markets have dropped. Brass ingot makers are slower, with orders being pushed out to the next month. This could be a function of the slower housing market.