After an up-and-down October, the first week of November starts with a flurry. November is typically a pivotal month as it sets the tone before the holiday season and end of the year. This week in particular will have many key releases.

1. The most important release this week will be the employment situation release, out on Friday. After a mediocre October reading (which these days is considered positive), hopefully November’s release will keep that momentum and lead to a decline in the elevated unemployment rate.
2. Tuesday brings us U.S. light vehicle sales. A strong rebound has been seen in the automotive industry this year, and a strong end to the year will be positive as we move into 2012. 
3. Monday has the Chicago purchasing manager’s release. While it only charts the Chicago area, this index is important to follow: It gives a good indication of national manufacturing, which itself will be released on Tuesday with the ISM National PMI.
4. The only construction data out this week is construction spending for September. Lately construction has been mildly improving with the first year-over-year spending increases in some time. So far this year, hospital and educational building spending have led the way.

For an economy that seems to be bouncing along the bottom, a strong week in economic releases will be a good sight for sore eyes.

This week I was able to attend the 5th Annual CRU North American Steel Conference at the Intercontinental Hotel in Chicago.  There were speakers from a wide range of industries, steel functions and raw materials.  While the speakers varied in backgrounds, there were three main themes that seemed to keep repeating themselves throughout the conference: Jobs, China and volatility.

1. Job creation
Job creation seems to be at the forefront of everyone’s mind and actions, from President Obama to the local grocery store owner.  This widespread hunger for job creation is no less prevalent in the steel industry.  In their own way, each presenter basically said job creation builds consumer confidence, consumer confidence leads to consumer purchases, and consumer purchases lead to steel demand.  The main problem they see moving forward is the “chicken and the egg” question: Which comes first, job creation or consumer demand?


2. Keeping an eye on China
Another main topic was the continued importance stressed on following China.  Everything - from their inflation issues to steel demand - greatly affects the U.S.  The one key theme that I took out is that we are no longer in a domestic market; steel is greatly affected by the global market.  The Chinese demand for steel and the raw materials that go into steel have huge implications for the U.S.  One presenter even said that “The price of iron ore in Wuhan, China is more important than the price of steel in Toledo, Ohio.”


3. Price volatility
Least but definitely not last is price volatility. The main sentiment at the conference was get used to it, because it is here for the long haul.  The fact is that we, now more than ever, are in a global market place and have far less control over pricing than we did just five years ago.  One way to deal with this constant volatility is becoming an educated and empowered buyer.  Following trends and staying as informed as possible goes a long way in staying ahead of price fluctuations.  Two great ways to get this information is through the (C)ORE Report and (C)ORE Blog.  


Sorry for the shameless plug, but it fit in so well.

After a relatively slow week on the macroeconomic front, things start to pick up.  This week brings the rest of the construction data for the month as well as a few economic releases.  With the construction data from last week bringing up-and-down momentum, it will be interesting to see the trend this week.

1. Wednesday bring us the new home sales data for September.  The year-over-year SAAR has climbed the last two months and three of the last four, showing the first signs of stability in five years.
2. Wednesday also brings us the durable goods order report.  As durable goods (or goods meant to last at least three years) are very steel intensive, a strong report will bolster steel demand.
3. The confidence of the consumer has never been more important than it is now, when the economy is looking bleak.  We’ll get a good sense for the current state of consumer confidence with the Consumer Confidence report out Tuesday, and the final Reuters/University of Michigan consumer sentiment report out on Friday.
4. Thursday brings us the first estimate of Q3 GDP.  After the final reading for Q2 was bumped up to 1.3% growth, the expectations are that Q3 GDP should outpace that reading.

Earlier this week I was fortunate enough to travel to Mobile, Alabama for the Galvanizers Association annual conference at the beautiful Marriott Grand Hotel in Point Clear.  While this conference was tailored more toward the quality and operations side of the coated steel industry, I found the presentations and lunch/dinner discussions both informative and entertaining. 

The main entertainment of the conference was a bus trip and tour of the brand new ThyssenKrupp mill in Calvert.  While the bus ride was a bit longer than most desired, all was forgotten when we pulled up to the facility.  With the surrounding area still booming with backhoes and workers, TK’s plans for further develop are very visible.

After a lengthy wait at the guard shack, it was reported to us that they were seeking executive approval for our visit; we were bused back to the galvanizing buildings.  After the distribution of hard hats and safety glasses, we were on our way inside.

The tour started in the building that holds the #2 and #4 galvanizing lines.  My first impression was how unbelievably clean it looked.  As we entered the galvanizing lines, both were running at full speed with line #2 acting as a continuous annealing line and line #4 a coating line for industrial/construction products.  

At the end of each line, the coils were shipped to the climate-controlled storage facility by an underground rail system, very efficient and nearly 100% automated.  Once the coils reach the storage facility, they were wrapped in packaging and prepared to ship out.

After leaving the storage facility, we entered the coating building that holds galvanizing lines #1 and #3, both used to support the automotive industry.  Unfortunately, line #3 was shut down for maintenance. 

While I wish the tour would have been extended through the slab reheating area, it was still very impressive to witness a state-of-the-art facility in person.

The calendar is looking a little bit fuller after a quiet last week.  Housing indicators seem to take the lead this week, with a couple key releases as well as some economic indicators that could strongly impact demand moving forward.

1. Monday morning brings us the industrial production and capacity utilization for September.  This release, combined with the Empire Manufacturing Survey, also out Monday, are key releases for manufacturing.  The expectations are for production to continue to improve.
2. Wednesday brings us the housing starts report for September.  While housing starts have been weak as of late, mainly due to extreme inventories of existing homes, it remains an important indicator to watch.  Hopefully we can see a pickup in new housing starts soon.
3. On Tuesday and Wednesday we get the key inflation figures for September.  The Producer Price Index (PPI) and the Consumer Price Index (CPI) releases each give a good indication of the prices producers have to pay to make goods, then in turn if they are able to pass these prices onto their customers.
4. Thursday brings us the existing home sales release for September.  Not only am I going to be watching to see if there was a pickup in sales, but I will also be interested in whether inventories continue to decline.  Another key index from this report is the median home price; any increase in home sales would be favorable.

Released this week by AEM (Association of Equipment Manufacturers), U.S. and Canadian sales of tractors and combines increased year-over-year in September after declining the previous two months.

Sales increased 2.3% from September 2010, showing some strength in a market that has been weak recently.  Sales of tractors led the increase, as combine sales have now fallen year-over-year for five consecutive months. 

Shipments of farm equipment (as measured by the durable goods report) showed that, on a dollar basis, farm machinery shipments increased in August to the highest level since the collapse in 2008.  Farm equipment, such as tractors, combines, and grain bins are very steel intensive and an increase in demand in these products bodes well for steel demand.

One of the reasons that could be spurring this increase in demand for farm equipment is the money Marcellus Shale area farmers are getting in exchange for leasing their land to natural gas drilling companies.  This extra cash combined with rising food prices and demand for crops, both domestically and overseas, have helped to push demand higher.

The drilling for natural gas in the Marcellus Shale has added steel demand impacts because the tubes, drilling equipment, and storage containers are made of steel.  There are implications on the cost side as well: Many domestic steelmakers are moving more toward natural gas and away from coal.  Domestically this makes sense, with the price of natural gas being relatively cost-effective.  So as long as this drilling is successful, and all expectations are that it will be, these leasing payments to farmers may continue to flow in for some time.

The Financial Times had a great article over the weekend discussing how domestic steel companies, as well as those overseas, have prepared for falling prices.  The combination of government debt concerns in Europe, along with buyers in the U.S. delaying orders due to extreme nervousness about global economic weakness, have become a huge threat for steelmakers.

Not only are the worries coming from North America and Europe, but from Asia as well.  Concerns about Chinese demand and mandatory government slowdowns to cool inflationary pressures have caused the Chinese government to cut credit, which has slowed steel consumption.

As these issues continue to put negative pressure on steel prices, MEPS, a UK steel consultant, forecasts world steel prices to decline to $838/tonne by December, an 8% decline since May. Many steel companies, especially in Europe and more recently in the US, have started temporary shutdowns for routine maintenance in order to, as ArcelorMittal puts it, “protect its market share and remain competitive in the event the environment becomes recessionary.”  

As demand has slowed across the globe, steelmakers are doing everything they can to help combat falling steel prices.  With global supplies currently outweighing demand, the shutdown of production (temporary or not) may be what is needed to help jump start the market.