Business Topics

Webb: Rates Will Continue to Pique Interest

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MCN Editor Dan Markham The industrial metals space has entered 2024 in a different place than year’s past, sitting inside a general, but shallow, slowdown in manufacturing, a condition exacerbated by macroeconomic factors outside the control of steel, aluminum and other metals players. 

Nick Webb, director of risk management for Ryerson, addressed a variety of topics swirling around the metals business as the featured speaker at the Chicago Chapter of the Association of Women in the Metal Industries’ annual Economic Outlook meeting. 

One of the key topics of concern heading into 2024 is interest rates, a holdover issue from the past 18 months. From March 2022 to July 2023, the Federal Reserve announced 11 rate hikes in an effort to tame runaway inflation. The hikes took interest rates from near zero to the 5.25-5.50 range at the end of 2023. 

The question now is, was this the peak? Recent comments from Federal Reserve Chair Jay Powell seems to suggest that. Through early December, Powell was still uncertain about the need for another hike, but his tune changed in his most recent remarks, Webb related. “Between Dec. 1 and Dec. 15, Powell said, at first, ‘we hadn’t done enough,’” Webb related. “Two weeks later, he said, ‘we think we’ve done enough. It looks like we’re on the right trajectory.’”

Powell’s job is certainly challenging. With inflation abating, he would like to bring interest rates back down, but not so far down as to incite a recession.

“It’s a very difficult test. To cool down the economy, but not so much to cause too many job losses. You want wages to come down, but not too much. It’s a pretty tricky thing,” Webb said. 

So what will the Fed boss do? Webb expects the Federal Reserve will ultimately announce cuts that will bring the rate down 75 to 100 basis points by the end of 2024. 

Of course, inflation isn’t totally under control, though its effects seem focused. The commodity markets, which saw historic levels of price increases during the early days of the COVID-19 pandemic, has largely returned to normal. But other spaces have yet to see prices crest. 

“The sad news for the manufacturing sector is there is still inflation, but it’s not in core goods. 

Nearly all the inflation right now is stemming from services,” Webb said.

As for as the pricing environment for commodity metals, some of the primary products are looking at very different scenarios at the start of 2024, Webb noted. 

With aluminum, there are increasing levels of inventories in LME warehouses, Webb said, though there is a caveat to that. Almost 90 percent of the material being stored by the LME is Russian, which won’t get touched by Western traders. It’s simply not accessible, and thus will not provide the same impact on pricing. 

Webb expects to see aluminum pricing increase about 10 percent over the next 12 months, “not massive, taking us back to levels we saw in 2022,” he said. The pricing increase will cover all products, including common alloy. 

In contrast, nickel remains challenged. “Every day it’s lower; we’re seeing down to 24- to 36-month lows,” he said. The market has been shaken by the “epic short squeeze,” an incident in 2022 when a major Chinese trader bet massively and incorrectly on a sizable drop in nickel pricing, ultimately leading to the LME eventually halting trading on the material. Lawsuits and mistrust have followed, and the LME continues its efforts to rebuild confidence in its handling of the material. 

In another nickel development, Webb noted that Indonesia continues to grow its place in the market, now estimated at 50 percent of supply with expectations it will climb to 75 percent by 2029. 

Ultimately, Webb doesn’t believe nickel has found its bottom yet. 

On the red metals front, the prospects for copper look similar to aluminum, with Webb anticipating an approximate 10 percent increase in pricing this year. He noted the recent shutdown of First Quantum mines by the Panamanian government, which will limit some supply. 

Finally, there’s steel, which is looking at its own distinct market. Domestic pricing has remained well-elevated above international pricing. 

“Five years ago, they traded at a premium, which might be $100 or $200. We’ve seen situations since where it was a $1,000 premium to some of these foreign markets. Some of that is tariffs in place,” he explained. “China has a 500 percent tariff. At those prices, it’s effectively illegal.”

European steel faces no such prohibitive levy, but there is still the issue of transportation. “The tricky thing with imports is if you want to go out and buy, you kind of have to have a sense of where markets are going to be in June or July. If you can tell where steel in the U.S. is going to be, it could be a good trade,” he said, while anticipating some steel consumers will begin to test the foreign market with more interest in the coming months. “Where there wasn’t an arbitrage in September, there is now.”

Webb said the steel market may be looking at a repeat of 2023, when prices ran up a little too fast in the first quarter, with the unnatural exuberance leading to a slide down from there.


[Sidebar:]

AWMI In Brief

The Association of Women in the Metal Industries was founded to promote and develop the growth of women in the male-dominated world of industrial metals. Founded in California in 1981, the organization has grown to 19 chapters in five separate regions of the country. 

AWMI believes that women in similar industries can benefit themselves and their companies through relationships, education and shared knowledge. The programs and activities of AWMI are intended to enhance members’ skills and experience, address challenges confronting the industry and promote members’ career growth with the ultimate goal of increasing the number of women employed in the metal industries. 

Chapters across the country hold events throughout the year, culminating with the Annual Conference which brings all chapters together. This year’s event is scheduled Nov. 8-10 in Nashville, Tenn. 

Membership is open to both women and men who are seeking to develop all aspects of their professional development and career advancement.

For more information on the organization, including membership, visit https://www.awmi.org/.