ISRI Friday Report-For the week ending May 24th

For the week ending Friday, May 24th:

Commodity prices lacked direction for much of the week amid lackluster flash manufacturing PMI's for China and Europe and concerns about when the Fed might scale back its bond buying program. In London, LME official 3-mo. copper rose as high as $7,510/mt ($3.41/1b.) on Wednesday morning but was back down to $7,320/mt ($3.32/1b.) Thursday morning following the preliminary HSBC/Markit report indicating slower manufacturing output in China in May. LME official 3-mo. aluminum also dipped to $1,858/mt (84 cents/lb.) yesterday morning. In New York, crude oil futures fell as low as $92.21/bbl in intra-day trading on Thursday after having started the week off at $96.25/bbl while gold futures edged higher to finish at $1,391.80/to yesterday. On Friday, Asian stock markets were down again in early trading while investors will be looking out later in the day for readings on German business sentiment and U.S. durable goods orders in April (consensus: +1.6%) ahead of the holiday weekend in the U.S.

Macro news...

In his testimony before the Joint Economic Committee this week, Fed Reserve Chairman Ben Bernanke

noted that while the U.S. job market remains weak, Europe has been acting as a drag on growth, and the

deficit reduction policies in current U.S. law will shave between 1-1½ percentage points off of U.S. growth

this year as compared to where it would be otherwise, the economy continues to grow at a “moderate”

rate and Fed policies have been successful on a number of fronts. The Fed Chairman noted:

“In the current economic environment, monetary policy is providing significant benefits. Low real interest rates have helped support spending on durable goods, such as automobiles, and also contributed significantly to the recovery in housing sales, construction, and prices. Higher prices of houses and other assets, in turn, have increased household wealth and consumer confidence, spurring consumer spending and contributing to gains in production and employment. Importantly, accommodative monetary policy has also helped to offset incipient deflationary pressures and kept inflation from falling even further below the Committee's 2 percent longer -run objective.

”New figures released this week confirm the improving housing market trend as existing home sales edged up to 4.97 million SAAR in April while new home sales advanced to 454,000 SAAR as new home prices jumped nearly 15% higher year-on-year. Initial claims for unemployment also improved to 340,000 for the week ending May 18, down from 363,000 in the preceding week. The larger concerns this week had to do with growth overseas given the latest Purchasing Managers’ Indexes indicating contraction in the manufacturing sectors in China and Europe in May. The preliminary HSBC/Markit China manufacturing PMI fell to 49.6 in May, down from 50.4 in April and signaling the first contraction in the Chinese manufacturi

ng sector in 7 months. And while the Markit flash Eurozone PMI improved from 46.9 in April to 47.7 in May, it continued to signal significant contraction in Euro zone manufacturing, just at a slightly slower rate of contraction. We’ll have more to report on China following next week’s BIR conference in Shanghai. But please note the Friday Report will not be published next week due to travel.

Click Here for the Chinese PMI-GDP comparison

Ferrous...

The World Steel Association reported this week that, for the 63 countries reporting to worldsteel, total steel output increased 1.2% year -on-year in April to 132 million tons while for the year-to-date (Jan-Apr) world steel output increased 1.9% to over 521 million tons. For China, worldsteel figures show that year-to-date production through April was up 8.4% to 258 million tons, while U.S. steel output declined 7.3% over the corresponding period. Steel Market Intelligence reports this week that the ramp up in Chinese steel output, including record 10-day Chinese production in early May that would annualize to a rate of 800 million tons, contributed to the drop in their Advance/Decliner Index to one year lows as domestic sheet prices have now reportedly dropped to the lowest level in 3 years.

For the week ending May 18, the American Iron and Steel Institute reports that domestic raw steel production

decreased 3.4% year-on-year but advanced 1.2% from the preceding week to reach over 1.9million net tons

as the capacity utilization rate improved to 79.5% . Figures released previously from the U.S. Geological Survey show that domestic consumption of purchased and home scrap in the U.S. during Jan-Feb 2013 fell to 8.59 million mt, down around 11% from the corresponding period in 2012. To summarize, official figures

show Chinese economic growth cooled in the first quarter of 2013 but Chinese steel production continued to rise. But, given the weakness in global iron ore prices, Chinese demand for ferrous scrap from the U.S. declined in the first quarter. In the U.S. on the other hand, official figures show economic growth accelerated in the first quarter but the latest figures show U.S. steel production and ferrous scrap consumption are down considerably year-on-year. Net result: lower year-on-year sheet and ferrous scrap prices. Scrap Price Bulletin’s composite No.1 HMS price at $332.50/gt is down some 17% from one year ago. Looking into June,

SPB’s trend indicator is still signaling somewhat bearish at 49, especially for cut grades (42.7) and foundry grades (42.4).

Nonferrous...

Figures released by our friends at the International Copper Study Group this week show that the

global refined copper market was in a surplus of 127,000 mt during the first two months of 2013, as compared to as production deficit of 170,000 mt during Jan-Feb 2012. ICSG estimates the global copper surplus early this year came at a time when world refined copper usage declined 6.5% year-on-year, including an 11% drop in Chinese apparent demand stemming from the 45% decline in Chinese net imports

of refined copper. The Study Group notes that they do not take into consideration unreported stock changes in China and that “anecdotal evidence suggests that the lower [Chinese] import level was accompanied by a

decline in unreported inventories held in bonded warehouses in China, which may have been all or

partially directed to domestic industrial use.”

As indicated, copper prices in London and New York came under pressure late this week following news

of a possible slowdown in Chinese manufacturing in May. LME 3-mo. copper reportedly last traded at

$7,304.25/mt (=$3.313/lb.) in London on Thursday as COMEX July copper fell to $3.304/lb. in New York

trading. But Fastmarkets.com reports this week that there may now be a shortage of copper scrap in

China, resulting in decreased output at some Chinese secondary smelters and pushing up copper

premiums there. In the U.S., AMM reports brass ingot maker scrap prices for Bare Bright at 324-326 cents, No. 1 at 315-317 cents and No. 2 at 301-304 cents, all effective Thursday. Looking forward, Goldman Sachs

analysts this week warn of the potential impact of new policies from China’s State Administration of Foreign Exchange on Chinese copper financing deals, with GS now projecting a 12-month copper price target of just

$7,000/mt.

Recovered Paper and Fiber….

According to figures from the US census Bureau, US exports of recovered paper to China in March increased to 1.25 million short tons valued at $170 million.But as compared to Jan-Mar 2012, first quarter 2013 RP exports to China fell 9% by volume to 3.8 million short tons and 15% by value to $512 million.Here’s the trend in monthly US recovered paper and fiber shipments to China since January 2012.

Click Here to see graph

For all countries, the FAS value of US exports of recovered paper fell 11% year-on-year to $823 million in the first quarter of 2013.Among the major destinations besides China, US exports sales of RP:

• Fell 9% to India to $70 million
• Declined 2.5% to Mexico to million
• Rose 15% to South Korea to $49 million
• Dropped 13% to Canada to $30 million
• Increased 51.5% to Indonesia to $14 million

ISRI Eye on Equities...

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