Neutral Beauty
September 20, 2016

Annual US Industrial Production in June is down 1.1% from the previous year. The current weakness in the industrial sector is due to decline in Electric and Gas Utilities Production (down 2 2%) and US Mining Production (down 8 8%) The mining industry is battered by low oil and mineral commodity prices over the past year, although early signs of improvement are evident Oil prices closed June at $48.33/barrel and are expected to generally rise into mid-2017. Prices will oscillate around $50.0/barrel through the rest of 2016. While still down roughly 50.0% from the 2014 peak, this level is generally considered profitable enough to encourage production.

Steel Futures Prices closed June at $220 0/gross ton. Further mild decline is likely this year, but the worst of the negative pricing pressures are behind us. Rising prices support our expectation of a recovery in the mining industry in the second half of 2016. US Manufacturing Production (up 0 5%) is outperforming the other components of Industrial Production, although annual growth is slowing. The Purchasing Managers Index has been generally rising since a cyclical low in late 2015, which with a recovery in the mining industry later this year, supports our expectation of a recovery in US Industrial Production in late 2016.

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