Macro Flash Report

Auto Sector

Takeaway: While steel demand in the auto industry has been an anecdotal bright spot, recent data continues to show that affordability is a major concern which stands in the way of a significant surge within the sector. Historical relationships would suggest there is a meaningful backlog for auto demand, however, we do not anticipate this to kick in until affordability is addressed or consumer confidence rebounds.

Wards Total Vehicle Sales SAAR & (5 yr. Pre-Covid Avg)

In June, Wards Total Vehicle Sales reported a significant drop to 15.29m, down from 15.90m in May and falling short of market expectations, which anticipated a slight decline to 15.80m. This decrease marks the first notable downturn in auto sales after three consecutive months of growth. This drop offers a concerning sign of potential challenges for the auto sector, impacting the demand for steel.

**Excluding the brief surge in March and April of 2021, total vehicle sales have not touched the 5-year pre-pandemic average of 17.2M (annualized).

Auto Production (solid, R1) & Inventories (dotted, R2)

April’s Auto Production faced a sharp decline, falling to 122.6 from 150.4, the lowest level since September 2021 and marking the first production decrease this year. The decline in production also signals potential challenges for the auto sector, as auto manufacturing slows, the need for steel in vehicle production diminishes, potentially leading to reduced steel orders.

Auto Inventories fell to 230.18 in May from April’s 242.92, the lowest since October 2023 and the third consecutive month of declines.

**While the recent trend is encouraging from a potential need for restocking perspective, the broader move of flat to lower production and a steady rise in inventories since 2022 clearly highlights that fact that downstream demand for autos is soft.

Durable Goods Orders (solid) & Durables Ex Transportations (dotted)

Durable Goods Orders in May showed a modest 0.1% increase, aligning with preliminary estimates and following a downwardly revised 0.2% rise in April. This marks the fourth consecutive month of growth, albeit slow.

Of note, Durables Ex Transportation fell by -0.1%, missing forecasts of a 0.2% increase and declining from a 0.4% rise in April. This highlights transportation as a key growth driver for May, with transportation equipment orders rising by 0.6%, suggesting that although the sector is not surging, there is some resilience and a stable floor.