Aluminum Prices Drop

The national average for a gallon of gas has eclipsed the psychologica Aluminum Prices Dropl $5 mark. In general, a 10% increase in gasoline prices equates to about 2-3% decrease in actual consumption by consumers. However, as we noted last week, the busy driving season combined with pent-up demand for air travel is causing refined products to continue their upward price trajectory.

Consumer behavior also changed according to how often they went to the pump. We observe that customers go to the pump more often but purchase fewer gallons per trip. There’s certainly some time value in playing money here, but with the expectation that prices will only continue to rise, it may be more prudent for customers to try to top up at cheaper prices here and now. Believe me, I know this is a difficult concept to get behind!

Last week we received other economic news that is definitely a catalyst for the high gas and diesel prices we are seeing today. May inflation was recorded at 8.5%, still far from the Federal Reserve’s target rate of around 2%. There’s a lot of work to be done in the fight against inflation, and it won’t provide any relief to refined product prices across the US until we start to win this war.

More Refinery Closures

Another crushing blow to US refinery capacity came this week, with the Lyondell Houston oil refinery scheduled to close by the end of next year, but could close sooner if an equipment failure affects the main units. This shows that refiners have to weigh the increased costs to repair the infrastructure and the economic costs against the benefit of purchasing inflated material costs to carry out these repairs to keep the refinery up and running.

All we can say is that if another refiner bites the dust, it will put even more stress on the distillate and gasoline supply markets. There are no products to be found at the moment because production capacities have shrunk and the demand for these products and future demand continues to contract while increasing. And for our East Coast friends, who are especially in need of diesel, the situation has become particularly dire. Stock levels of distillates on the east coast haven’t been this low in over a decade.

Scrap Aluminum Prices

With aluminum being one of the highlights in May 2022, we saw the aluminum market decline rapidly. We’ve seen prices drop 35% to 40% on some of the higher aluminum grades, and even faster on some of the lower grades. This was due not only to the ongoing Ukraine conflict, but in part because China had shut down their economy for several weeks and repeatedly. On top of that, we continued to see aluminum prices weaken as energy prices for refining these metals continued their upward trend.

While many are looking to the copper market for direction signs, we haven’t seen any strong growth resemblances lately. While the Chinese saw a rise in the market after returning from quarantine, we saw that the same rise fell with the stock market. Many investors think that energy markets in prices will be the biggest catalysts for rising or falling markets.

If you don’t like the bad news, we suggest you move on to the next section… We continued to see the iron market weakening and prices falling again. We believe that we have reached the market base with the ongoing downward pressure, but with many foreign market events from oil to the world economy, we may continue to see the steel markets especially at lower levels compared to last year. What we are investigating is that many large steel consumers are starting to face the fact that in the future they may have to convert their facilities from fossil fuels to renewable energy.

Higher Steel Prices Are Coming

This was really evident under the current administration and could cause scrap prices to rise, but it won’t last for many years. In the short term, we should expect to see these markets at their levels hopefully with some sort of rebound after the summer and after some financial parts have worked themselves out.