Headline inflation continues to cool in major ecomonies
Inflation in the US was 3.4% y-o-y in April, down from 3.5% y-o-y in March, representing a 0.3% m-o-m increase. The headline figure was in line with market forecasts. Gasoline inflation rose 2.8% m-o-m in April, constituting a 1.2% y-o-y increase, with market players continuing to pay close attention to the energy subindex, which registered 2.6% y-o-y growth in April, a 1.1% m-o-m increase. The food index was unchanged m-o-m, up 2.2% y-o-y. Although headline inflation ticked down in April, it remains significantly above the Federal Reserve’s 2% y-o-y target. At the last meeting at the beginning of May, Federal Reserve Chairman Jerome Powell stated that had been a “lack of further progress” on inflation. Market players anticipate either one or two 25 basis point (b.p.) cuts in 2024, but sources say they would not be surprised if the Federal Reserve kept rates unchanged.
Annualised inflation in the Eurozone was unchanged in April, registering 2.4%. Food, alcohol and tobacco inflation accelerated to 2.8% y-o-y in April, up from 2.6% in March. Additionally, the deflation in energy decelerated from -1.8% y-o-y in March to -0.6% in April. Services inflation fell to 3.7% y-o-y, after several months recording 4%. Although the European Central Bank (ECB) left rates unchanged at the most recent meeting, members strongly hinted that the ECB may begin cutting rates in June, only if inflation continues to trend down.
The consumer price index in China accelerated to 0.3% y-o-y in April, up from 0.1% in March, marking the third consecutive month of inflation. The April figure beat market expectations of a 0.2% y-o-y increase. Although domestic demand reportedly remains sluggish, a recent increase in imports has led some market players to believe that the economic situation in China is stabilising. Market players are anticipating further government stimulus in the coming weeks as the country battles to move away from deflationary territory.
Metals prices in the packaging industry went in different directions in April
Demand for steel remains weak globally and supply remains comparatively high, so there are minimal prospects for price growth for steel products. The CME’s US steel hot-rolled coil (HRC) 3-month prices fell 6% m-o-m and 10% y-o-y to $913/MT in April. Consumers continue to buy insubstantial volumes on the market, as they are not sure of sustainable growth in aluminium consumption and fear a downward price correction. The US manufacturing PMI in April fell below 50 points, reflecting deteriorating sentiment among purchasing managers.
The EU HRC price fell by another 6% m-o-m to €648/MT in April. Demand remains sluggish and producers are revising their output forecasts for the current year downwards. At the beginning of May there was an attempt among producers to raise prices, but the new level was not accepted by the market and prices retracted in the middle of the month.
The LME aluminium 3-month price grew by 11% m-o-m to $2,526/MT in April, on the back of intensified trading. Aluminium market players do not see significant fundamental factors for price growth, however, the speculative component of demand remains strong. Dynamic price growth is typical for all base metals without significant improvements in the main consuming industries, which indicates growing investor activity. Aluminium packaging products are still lagging behind LME aluminium in terms of price growth, as demand remains weak. This is especially true for aluminium cans, where in the EU stock prices rose 7% m-o-m, in the US cans prices rose 5% m-o-m in April. More rapid price increases were in the aluminium foil segment in April: in the EU prices rose by +11% m-o-m, in the US prices rose by 9% m-o-m.
Packaging paper prices soared in April in US and EU
Packaging paper prices rose rapidly in the EU and the US in April as rising production costs pushed prices up. Paper producers had been negotiating price increases since the beginning of 2024, but were only able to do so in April, due to rising raw material prices and increased market demand.
Northern Bleached Softwood Kraft (NBSK) pulp reached an all-time high in April, increasing by 7% m-o-m and by 14% y-o-y to €1,380/MT. Higher paper production and lower pulp supply were the main price drivers. Packaging paper consumers in EU expected higher prices, so they stepped up purchases realising that expensive raw materials would further encourage producers to raise prices. As a result, packaging paper prices rose by 8-10% m-o-m depending on the product. The only exception was the price of cardboard boxes, which increased only slightly as the market availability was high.
Similar trends are taking place in the US market, where producers are ramping up production amid recovering demand for paper. In April, paper production in the US grew by 3% y-o-y, and overall paper production volumes started to recover from August 2023. As a result, the demand for pulp has increased and Southern Bleached Softwood Kraft (SBSK) pulp US market prices increased by 6% m-o-m in April, again raising the cost of paper production. Suppliers responded by increasing prices for Kraftliner by 5% m-o-m and 7% m-o-m for Testliner in April. Cardboard prices have remained stable, but according to market sources waste paper has also started to become more expensive and this is likely to help cardboard producers to raise prices in the future.
Construction indices show weak results globally for Q1 2024
The construction industry is one of the most important sectors for assessing the state of the economy. In Q1 2024, despite government stimulus in China or lower mortgage rates in the US, this is not enough to bring back consumer activity. As a result, only the US is showing weak improvement in construction indices, while the EU and China are stable or falling.
The US construction market is also showing an improvement on the previous year. The number of building permits has shown 6 consecutive months of y-o-y growth, but it is worth adding that the rate of growth slowed to 1.6% y-o-y in April. The median listing price per square feet in US continued to grow by 4% y-o-y in April, surpassing the previous high of June 2022.
The construction confidence indicator, which has been recovering since February 2024 and reached -5 points in April, shows that sentiment in the EU construction market is seasonally recovering. At the same time, it should be realised that the index is still in the negative zone. Only Spain, Croatia, Malta, Slovenia and the Netherlands are characterised by a positive index. In other European countries, expectations are negative, which is reflected by weak construction activity. In Germany, the number of new building permits issued remained stable y-o-y in March, while in France the figure is 11% lower y-o-y.
The Chinese construction industry has not improved so far. In Q1 2024, the number of construction in progress in square meters fell by 11% y-o-y, while new construction starts fell by 28% y-o-y. Despite government stimulus, construction remains an unpopular investment and demand remains weak. This is primarily reflected in weak demand for materials used in construction.
The global automotive industry seems to have stopped the strong growth of recent years
Steady growth in automotive production has been the main industry that has driven metal consumption in the market in recent years. However, at the end of 2023, some market players said that the boom phase seems to be ending and demand is weakening. In Q1 2024 there were indeed signs of a decline in motor vehicle production in the EU and the US, and China seemed to be slowing down its production growth.
Automotive continues its seasonal recovery of sales and production in the EU after a low start to the year. However, production and sales are down year-on-year. EU passenger car sales grew by 17% m-o-m in March yet fell by 5% y-o-y. Motor vehicle production declined by 8% y-o-y in March, falling for for the fifth consecutive month. It seems that the market fears have been confirmed, demand is saturated and further growth in motor vehicle production is unlikely.
In the US, the automotive industry is also facing weak demand and rising imports, so production is declining. Thus new vehicle sales, after steady growth, fell by 9% m-o-m and 2% y-o-y in April. However, fundamentally, we note the growth of car imports to the US, which last year was 15% y-o-y, intensifies competition with domestic manufacturers. As a result, car production in the US has fallen for 10 consecutive months, dropping 5% y-o-y in March. This is directly reflected in lower demand for materials used in the automotive industry.
China continues to increase output of motor vehicles, which grew by 5% y-o-y in Q1 2024, while production of electric vehicles increased by 29% y-o-y. For the first four months of 2024, exports of motor vehicles continue to grow dynamically, showing a 29% y-o-y increase, while exports of electric vehicles grew by 50% y-o-y. Chinese production continues to grow on the back of exports. However, import duties imposed in the US on goods from China, including electric cars, are likely to slow the current growth of the automotive industry in China.
Written by Jake Mills-Zivanovic
