Ulbrich Economic Update - Number 23 (April 2022)

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April 2022 Economic Update Executive Summary

Europe Russia Ukraine Invasion

Metals & Commodities

THE STAINLESS STEEL MARKET EXPERIENCED STUNNING TUMULT IN MARCH due to an LME dustup precipitated by Russia’s invasion of Ukraine and a short squeeze involving Chinese metals group Tsingshan. When calm was restored, market conditions remained as they were with long lead times and higher prices. Prior to the LME nickel’s break with reality, March nickel prices were up about 5% from February and at their highest levels since 2008. Supply shortage fears drove a rally in nickel, used in stainless steel and EV batteries, as Russia faced tightening economic sanctions. Russia accounts for 20% of global Class 1 nickel exports. On the day of the invasion (2/24), LME 3-month nickel settled at $11.63/lb. By March 7, nickel settled at $19.12/lb and spiked on March 8 with some buys as high as $45.81/lb. The LME suspended trading, cancelled trades and set trading limits. Some mills raised nickel premiums, while others pulled off the market to prevent panic buying. Market leader NAS announced a resolution on March 18, defining the April surcharge using LME prices from 2/21 to 3/7 and excluding prices from 3/8 to 3/18, when trading was suspended. The result was an average of $12.60/lb. For the week ending 3/25, LME nickel averaged $15.19/lb vs. the February average of $10.96/lb.


EUROPE’S ECONOMIC RECOVERY SLOWED IN MARCH AFTER RUSSIA’S INVASION OF UKRAINE. The war’s impact rippled quickly through Europe by disrupting already strained supply chains, weakening confidence and sending raw material and energy prices soaring. The EC prohibited imports of key iron and steel goods from Russia into the EU. COVID-19 lockdowns in key Chinese manufacturing and shipping hubs raised alarms over a potential new wave of supply-chain disruptions.

USA Rising Prices

The Americas

U.S. MANUFACTURING ACTIVITY SLOWED IN MARCH as tight supply chains continued to drive input prices higher, but factories boosted hiring, allowing them to reduce the backlog of unfinished work. Employers added 431,000 jobs in March, and the jobless rate fell to 3.6%. March marked the 11th-straight month of job gains above 400,000. Rising energy, food and services prices pushed already elevated U.S. inflation to a 7.9% annual rate in February. Consumer confidence rebounded in March from the prior month’s one-year low, bolstered by growing labor market optimism. Retail sales increased 0.3% in February and were up 17.6% from a year ago. Sales at auto dealerships increased 0.8%, reflecting higher prices amid shortages, as auto manufacturers reported a decline in unit sales. Existing home sales fell 7.2% in February. Mortgage rates surged, with the 30-year fixed rate near a three-year high. Rates averaged 4.67% in late March. Producer prices rose 0.8% as goods prices shot up 2.4%, pushed up by a 14.8% spike in wholesale gasoline prices that accounted for nearly 40% of the increase in the price of goods. The PPI climbed 10% in the 12 months through February.

US and British Steel Deal

Steel Industry Updates

THE U.S. AND BRITAIN STRUCK A DEAL TO REMOVE TARIFFS ON BRITISH STEEL AND ALUMINUM. The UK will be allowed to ship up to an annual 500,000 tonnes of steel duty-free, an amount based on the actual trading volume in 2018 and 2019. U.S. Steel will spend $60mn to build a pig iron caster at its Gary Works steel mill to supplant imports to its scrap-based mill in Arkansas.

Energy Sector News

THE NUCLEAR INDUSTRY MAY NOT BE IMMEDIATELY AFFECTED BY SANCTIONS ON RUSSIA despite reliance on uranium imports. Sanctions would have more severe implications for advanced nuclear reactor designs, which require an advanced form of uranium fuel only available from Russia and China. South Korea's nuclear power industry is at an inflection point after Yoon Suk-yeol won the presidential vote and pledged to revive the fortunes of a once-dominant sector that faces stiff business hurdles.

EV car powers home

Automotive Trends

GM AND PG&E PLAN TO TEST THE USE OF EVS TO POWER HOMES DURING OUTAGES as the California utility works to reduce the impact of wildfires on its customers. Vietnamese EV maker VinFast will start building a factory in North Carolina this year, which is expected to be operational in the 2nd Half of 2024 with capacity to produce 150,000 EVs/year. General Motors plans to create a new, independently owned premium brand in China that will market "halo cars" with edgy designs from the U.S.

Medical Insights

NEW RESEARCH SHOWS HIGHER RISK OF DEVELOPING DIABETES AFTER COVID-19 INFECTION. A large new study found that people who recovered from COVID-19 within the past year are 40% more likely to receive a new diagnosis of diabetes compared to those who weren’t infected. NVIDIA is expanding its products for healthcare with the launch of Clara Holoscan MGX to help medical device organizations develop artificial intelligence tools and cut the time to market for software-defined medical devices.

Hydrogen Plane

Aerospace Developments

DELTA AIR LINES WILL HELP AIRBUS DEVELOP A HYDROGEN-POWERED PASSENGER AIRPLANE. Airbus plans to produce a small "ZEROe" passenger aircraft powered by hydrogen to enter service in 2035 and wants feedback from customers as the new aircraft is developed. Roscosmos, the Russian space agency, will no longer service the RD-180 rocket engines used by the United Launch Alliance, the joint venture of Lockheed Martin and Boeing, to launch national security missions for the Pentagon.

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