Advertisement
Economic Forecasts

Key Industrial Resources Face a Tepid Recovery

Good old supply and demand are back in control of the prices of industrial metals, cement and lumber.

Recession-slammed prices for metals, cement and lumber are slowly clawing their way back up, and won’t be subject to any speculator-driven price spikes anytime soon.

Prices in the foreseeable future are more likely to be determined by demand and supply fundamentals than a return of investor-stoked futures bidding of the kind that drove up costs for aluminum, copper, lead, nickel, tin and zinc, creating a bubble that burst in mid-2008.

Advertisement - Article continues below

The prerecession investment frenzy was fueled by individuals and hedge and pension fund managers. They were betting that demand for metals in the U.S., China and elsewhere would continue at a heady pace, with no slowdown in sight.

They were wrong. The selloff, which came amidst the worst recession since the 1930s, deflated prices by 50% within less than a year -- from May 2008 to February 2009 -- based on an International Monetary Fund index.

Going forward, metals prices will be tempered by what we expect will be a long and tepid economic recovery. The odds are that it will take five years for the prices to approach the highs reached in late 2007 through late spring 2008.

Take aluminum, for example. Its use soared to around 23 million pounds in the U.S. and Canada during 2005 and 2006, and just slightly less in 2007, before tumbling to 15 billion pounds as the recession hit. Look for aluminum demand to inch up to 16.5 billion pounds this year, but it will be 2015 or so before aluminum consumption approaches the levels of a decade earlier.

Advertisement
Advertisement - Article continues below

Ditto for U.S. steel production, which, like aluminum, is tied closely to the consumption demands of the automobile, appliance and construction industries. Recovery by the latter two will stagnate for several more years. Automakers will slowly boost production through mid-decade, but U.S. mandates to increase vehicles’ fuel efficiency will prompt them to use more lighter-weight materials, especially plastics and composite fiber materials.

But even though steel output won’t approach its prerecession levels until 2015 or so, more steelmakers will be able to make a profit with lower production from more-efficient steel plants.

Cement manufacturers and lumber mills can also expect incremental production growth, tied as they are to the fortunes of the housing, office and commercial development sectors. It will be at least five years before they see companies in those sectors buy as much product as in the years immediately preceding the downturn.

Advertisement

Most Popular

2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 1, 2020
What Are the Income Tax Brackets for 2020 vs. 2019?
tax brackets

What Are the Income Tax Brackets for 2020 vs. 2019?

The IRS unveiled the 2020 tax brackets, and it's never too early to start planning to minimize your future tax bill.
June 20, 2020
Searching for the Perfect Place to Retire
Empty Nesters

Searching for the Perfect Place to Retire

We home in on two places with less traffic and lower costs. 
July 2, 2020

Recommended

Travel Planning in the Time of Coronavirus
business

Travel Planning in the Time of Coronavirus

Insurance may not cover canceled vacations, but airlines and hotels may be flexible.
June 11, 2020
13 Things That May Soon Disappear Forever (The Pandemic Edition)
business

13 Things That May Soon Disappear Forever (The Pandemic Edition)

Emerging technologies (and now the COVID-19 pandemic) are putting an end to these familiar items and practices.
June 9, 2020
Don't Let the Drama Surrounding PPP Distract You from Running Your Business
business

Don't Let the Drama Surrounding PPP Distract You from Running Your Business

If you're so wrapped up in worry about your Paycheck Protection Program loan not being forgiven, think about the worst-case scenario. It might not be …
June 5, 2020
Another Epidemic to Worry About: Identity Theft
business

Another Epidemic to Worry About: Identity Theft

Fraud losses grew in 2019 and are likely to increase in 2020.
June 5, 2020