Manufacturing

In July 2021, and for the second month in a row, the U.S. Manufacturing industry grew at a slower pace, and while there are some signs of the supply chain bottleneck clearing, raw materials shortages persisted yet again.

The survey from the Institute for Supply Management (ISM) showed that the supplier deliveries index retreated further away from the 47 year high that was reached in May, and the prices paid by manufacturers fell by the most we’ve seen in a 16 month period.

The ISM's index of national factory activity fell to 59.5 last month, the lowest reading since January, and down from the 60.6 in June. Expansion is indicated by a reading of 50 or above in manufacturing and that accounts for 11.9% of the U.S. economy. Reuters had polled economists and forecast that the index would change very little at 60.9. An increase instead of the decrease that we actually saw.

Machinery, computer, and electronic product manufacturing industries were just a few of the 17 out of 18 industries who reported growth in July. The only industry that reported a decline was textile mills.

According to ISM, prices paid by manufacturers fell to 85.7 in July which was down from the 92.1 record hit in June. This reflects how commodity prices are finally easing.

ISM also reports that after May’s supplier deliveries reading of 78.8, the highest since April 1974, the reading fell to 72.5, still lower than the 75.1 we saw in June. Note: readings above 50 indicate slower deliveries.

We have also seen that during the COVID-19 pandemic, demand has shifted to goods from services because millions of Americans were stuck at home, thus putting strain on the supply chain. Now that approximately half of the population has been completely vaccinated against coronavirus, people are now allowed to travel, visit their favorite restaurants, go to events and mingle among more service-related activities that were previously discouraged.

Because of the vaccinations and bans being lifted, we should once again see a shift in service and good related demands in the U.S.

Oil & Gas

New concerns over demand recovery emerge as China battles a resurgence in coronavirus. Oil declined in New York after a surprising increase in U.S. crude inventories.

Almost half of China’s 32 provinces and at least 46 cities have advised against non-essential travel as the delta variant of COVID-19 has been detected amongst the residents. At the same time, according to government data, American crude supplies increased by 3.63 million barrels, the largest increase since March 2021. Key time spreads for futures contracts tumbled in response to weakening supply-demand fundamentals.

The resurgence of COVID infection in China is said to be hampering perceptions of demand recovery.

After barely edging an advance in July, August is going to prove to be a tough month in the crude industry. By tightening controls in a Asian countries to curb the spread of the virus, we see a risk of once again eroding oil demand at a time when the Organization of Petroleum Exporting Countries (OPEC) and their allies are slowly increasing supply.

Falling to the lowest volume since last November, U.S. gasoline prices decreased by 5.29 million barrels. At the same time, the Energy Information Administration said that the gauge of fuel demand and the total products supplied remained steady.

“We’re seeing a continued increase in fuel consumption, which is a good sign of economic recovery. While there is clearly concern about the delta virus, overall we’re seeing continued recovery on the demand side,” said Quinn Kiley, portfolio manager at Tortoise.

In the past week there has also been some rising tension near the Persian Gulf, a region vital to the world’s oil market.

An important business barometer for the drilling industry and its suppliers, the Baker Hughes Rig Count has almost doubled in the last year. This activity is driving a lot of flatbed volumes out of the Houston market (for drill pipe, casing, machinery etc). For loads from Houston to Oklahoma City, flatbed rates are up $1.50/mile since March to an average of $3.48/mile.

Steel

The Commerce Department’s most recent Steel Import Monitoring and Analysis (SIMA) data from the American Iron and Steel Institute (AISI) showed the following:

●     Steel import permit applications for the month of July totaled 2,786,000 net tons (NT). This was an 8.2% decrease from the 3,036,000 permit tons recorded in June and a 3.8% decrease from the June preliminary imports total of 2,897,000.

●     Import permit tonnage for finished steel in July was 1,879,000, down 6.9% from the preliminary imports total of 2,018,000 in June.

●     For the first seven months of 2021, total and finished steel imports were 17,474,000 NT and 11,874,000 NT, up 15.7% and 18.5%, respectively, from the same period in 2020.

●     The estimated finished steel import market share in July was 20% and is 19% year-to-date.

Finished steel imports with large increases in July permits vs. the June preliminary imports include the following categories.

●     Sheets and strip all other metallic coatings (up 39%)

●     mechanical tubing (up 29%)

●     sheets and strip galvanized hot dipped (up 19%)

●     reinforcing bars (up 10%).

Products with significant YTD increases vs. the same period in 2020 include the following : 

●     hot rolled sheets (up 66%)

●     hot rolled strip (up 56%)

●     light shapes bars (up 55%)

●     plates in coils (up 44%)

●     cut lengths plates (up 42%)

●     sheets and strip all other metallic coatings (up 40%)

●     wire rods (up 39%)

●     wire drawn (up 22%)

●     hot rolled bars (up 17%)

●     heavy structural shapes (up 14%)

●     sheets and strip galvanized hot dipped (up 11%).

Issuing a statement in response to the announcement about an agreement on infrastructure funding, Kelvin Dempsey, President and CEO of AISI, had this to say:

“AISI welcomes today’s agreement by President Biden and a bipartisan group of senators to implement a plan for infrastructure investment. AISI supports the framework that would make historic and much-needed investments in our nation’s infrastructure. This is a key development in the process to fix America’s deteriorating roads and bridges – and to use American steel to do so. We also applaud the bill’s provisions to ensure that the steel products for water infrastructure projects be made in the U.S. This package ensures that American steel —which is the cleanest in the world — will be used to build back America. We urge the Congress to pass this critical legislation as soon as possible.”