1 September 2014 Metals Monitor

1

Metals Monitor

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1 September 2014 Metals Monitor

1 Trend Tracker

Ferrous: NOLVs remained relatively

consistent due to minimal pricing volatility

over the past six months.

Non-ferrous: NOLVs increased due to price

increases for aluminum, lead, zinc, and nickel

in the summer months.

Ferrous: Sales were mixed due to higher

prices for some products and flat to lower sales

volumes.

Non-ferrous: Sales were mixed due to higher

prices for aluminum, nickel, and stainless steel,

as well as fluctuations in copper price trends.

Ferrous: Gross margins increased due to price

stabilization.

Non-ferrous: Gross margins were mixed due

to a tight spread between prime aluminum and

scrap pricing, higher margins for nickel and

stainless steel due to price increases, and

volatile copper margins.

Ferrous: Inventory levels remained consistent,

as the seasonal summer slowdown inhibited

speculative buying and stocking.

Non-ferrous: Inventory levels remained

consistent as companies managed inventory

levels relative to price fluctuations.

Ferrous: Prices were consistent, as

fluctuations in scrap pricing remained within a

range of $10 per gross ton over the past four

months, reducing the pricing pressure placed

on downstream products.

Non-ferrous: Pricing increased due to price

increases for aluminum, lead, zinc, nickel, and

stainless steel, with volatile prices for copper.

Ferrous Metal Non-Ferrous Metal

NOLVs

Sales Trends

Gross Margin

Inventory

Pricing

2 September 2014 Metals Monitor

2 Overview

Over the summer, the demand outlook for steel brightened

slightly, although the steel market remains clouded by excess

capacity and economic uncertainty. Meanwhile, supply

pressures boosted prices for many base metals in recent months.

In the U.S., prices for flat rolled coil and rebar

slipped in June amid the seasonal summer

slowdown. Hot rolled coil prices recovered in

July, joined by cold rolled coil prices in

August, while rebar prices held firm. Plate

pricing, meanwhile, continued its steady

ascent. Steel buyers demonstrated healthy

demand despite a high level of imports.

However, shifts in the economic or political

landscape, as well as the announced addition

of steel capacity through 2020, could pose a

threat to the domestic steel market.

Base metals have experienced tightness in the

physical markets due to supply and demand

factors, lifting prices for aluminum, zinc, and

lead more than expected.

The elevation in prices may be short-lived,

however, as the volumes of metals held in

and out of official exchange warehouses

distort the physical markets. In addition,

demand remains tepid, and supplies of base

metal scrap are readily available, with the

exception of stainless steel scrap.

3 September 2014 Metals Monitor

3 Overview

The automotive industry is a significant consumer of steel

and aluminum. Auto sales climbed throughout the

summer, buoyed by a perfect storm of seasonal incentives,

higher demand for trucks and SUVs, easier accessibility to

credit, new product offerings, lower gas prices, and

improvement in the economy.

In August 2014, overall auto sales increased 5.5% year-

over-year, with one less selling day to boot. Moreover, the

industrys annualized selling rate reached 17.5 million

vehicles, according to Autodata, marking the highest level

in nearly eight years and returning the industry to pre-

recession levels. Of the Big Three Detroit automakers,

Chrysler Group LLC posted the best results, with a 20%

sales increase in August. Meanwhile, Ford Motor

Company experienced flat year-over-year sales, while

General Motors Companys sales slipped 1%. Asian

automakers fared better, with most registering sales

increases. Analysts are optimistic auto sales will continue

to grow at a healthy pace through the end of 2014.

The Institute for Supply Managements purchasing

managers index (PMI), an indicator for manufacturing

activity, has generally increased in recent months. The

PMI rose 1.9 points from 57.1 in July to 59.0 in August,

marking the highest reading in the last year, while the

lowest reading of 51.3 was registered in January.

A reading above 50 indicates the manufacturing economy

is generally expanding, while a reading below 50 reflects

general contraction. The manufacturing sector has

expanded for the 15th consecutive month. A PMI above

42.2 over a period of time typically denotes an expansion

of the overall economy. The August PMI therefore

demonstrated growth in the overall economy for the 63rd

consecutive month.

The Baker Hughes Rig Count tracks active rigs engaged in

the exploration of oil and natural gas, and is a leading

indicator of demand for metal products used in drilling,

completing, producing, and processing hydrocarbons.

U.S. rig counts have increased over the past year, with

year-over-year gains for the vast majority of weekly

counts. Canadian rig counts have been more volatile,

although they have also mostly increased year-over-year.

As of September 5, 2014, the U.S. rig count totaled 1,925

rigs drilling for oil or gas, increasing by 11 rigs from the

prior week and up by 158 rigs from the same week in

2013. Although demand is strong for both crude oil and

natural gas, the number of oil rigs has increased in recent

years, while the number of natural gas rigs has been

falling since mid-2011 due to efficient drilling methods

that require fewer rigs for the same amount of

productivity. In addition, oil prices have remained above

the $90 per barrel throughout 2014 to date, supporting oil

drilling and a high oil rig count.

Month Seasonally Adjusted PMI

August 2014 59.0

July 57.1

June 55.3

May 55.4

April 54.9

March 53.7

February 53.2

January 2014 51.3

December 2013 56.5

November 57.0

October 56.6

September 56.0

August 2013 56.3

Date

U.S.

Rig

Count

Change

From

Prior

Year

Canadian

Rig Count

Change

From

Prior

Year

September 5, 2014 1,925 158 414 25

August 8 1,908 130 213 29

July 3 1,874 117 309 95

June 6 1,860 95 214 62

May 2 1,854 90 163 42

April 4 1,818 80 235 29

March 7 1,792 40 587 7

February 7 1,771 12 621 (10)

January 10, 2014 1,754 (7) 477 (54)

December 6, 2013 1,775 (25) 402 (4)

November 1 1,742 (58) 394 11

October 4 1,756 (81) 361 (11)

September 6 2013 1,767 (97) 389 44

4 September 2014 Metals Monitor

4 Recent Appraisal Trends

Appraisals valuing metals inventory typically rely on

market prices, which are affected by input costs,

supply levels, and demand from metal-consuming

industries such as the automotive, industrial, and oil

and gas drilling sectors.

Based on industry trends, NOLVs for ferrous metals

remained relatively consistent due to minimal

pricing volatility over the past six months. NOLVs

for non-ferrous metals increased, as supply-side

pressure drove up pricing for aluminum, lead, zinc,

and nickel throughout the summer months, while

other base metal prices were fairly volatile.

Sales of ferrous inventory were mixed, with no major

shift in demand for downstream products. Higher

prices this year versus last year helped stabilize

dollar sales trends, while sales volumes remained flat

to down. A number of companies expect demand

increases from the construction market in the third

quarter. Sales of non-ferrous inventory were also

mixed, as increases in aluminum, nickel, and

stainless steel pricing drove up dollar sales trends for

these metals versus last year, while copper sales

trends continue to fluctuate with pricing. However,

there were no major changes in sales volume trends.

Gross margins increased for ferrous metals as a result

of continued price stabilization, allowing mills and

distributors to rely on stable inventory costs and

maintain margins. Gross margin trends for non-

ferrous metals were mixed due to global pressures.

Continued increases in aluminum prices have

allowed companies to boost selling prices, but a tight

spread between prime aluminum and scrap pricing

has hindered gains in margin. Meanwhile, nickel

and stainless steel margins have gained steam from

price increases, while copper margins remain

volatile.

Inventory levels for ferrous metals were consistent,

as the seasonal summer slowdown