Final Thoughts

Final Thoughts

Written by John Packard

It seems to be a foregone conclusion that there will be a flat rolled price increase announcement within the next few working days. Spot prices have remained firm with benchmark hot rolled averaging $665 per ton ($650-$680 range) based on our SMU index. Scrap is forecast to be up by $20 to $40 per gross ton and maybe $50 per gross ton by the end of the year.  If that is correct the mini-mills will have pressure on their margins.  Our expectation would be for Nucor or Severstal to lead off the next round of increases.  Our expectation is $30-$50 per ton…

My opinion is prices will rise from here through at least the rest of the year. As of 6 PM this evening I am adjusting out SMU Price Momentum Indicator to Higher.  I will have more details on the reasons why in Sunday night’s edition of our Executive Newsletter and in our Premium Special issue to be published for our Premium Level members tomorrow.

September preliminary census data was reported by the U.S. Department of Commerce around 5 PM ET today. The big number is total imports for September were 2,760,821 net tons which is lower than August when the U.S. received 2,878,367 net tons. Slabs were much lower than the license data had projected with 633,951 net tons vs. license data of 771,300 net tons. We will have a full report in Sunday night’s edition of our Executive issue of Steel Market Update.

Our next steel market survey will begin on Monday morning, November 4th.

I haven’t been reading the other industry newsletters’ coverage of the ThyssenKrupp Steel Americas rumor mill. However, I am aware of the comments being made regarding ArcelorMittal, Nippon and potentially U.S. Steel joining forces to pursue the Calvert, Alabama facility. Here are some of my thoughts and opinions on the subject.

It has been known for more than a year that the two primary interested parties were CSN out of Brazil and ArcelorMittal with their headquarters in England. Other companies who had expressed interest were Nucor and U.S. Steel for the Calvert operation and Ternium for the CSA slab mill in Brazil.

Ternium dropped out of the bidding almost immediately feeling the price being requested was not reasonable.

CSN became the lead bidder because they were interested in both assets – CSA, the slab mill in Brazil and the Calvert, AL rolling mill here in the United States. No other company expressed interest in the Brazil facility as AM and USS are both long slabs.

Our opinion is Nucor is only interested from a commercial standpoint and has been upgrading the Decatur and Berkeley operations in order to become a larger supplier to automotive and doesn’t really need the Calvert operations.

CSN has wanted to become a larger player in the North American market and has made several attempts to purchase mill assets in the United States only to be spurned by the unions. The one asset they did manage to purchase was the former Heartland Steel in Terre Haute, Indiana. The Heartland Steel facility was a non-union plant and is now called CSN.

This may be CSN’s last chance to purchase a quality non-union steel asset in the United States or Canada.

If ArcelorMittal becomes the lead buyer there most likely will be questions by the U.S. Department of Justice. Since the mill is only a rolling mill and is not yet considered to be a major automotive supplier they may or may not be required to divest themselves of other U.S. assets.

When speaking with buyers and mill people the expectation is if AM is the buyer there will be fewer competitors and a potential elimination of one of the more competitively priced mills in the United States.

If CSN becomes the new owner they then become a “wild card” as no one is quite sure how they will go to market.

Our sources do not believe that the CEO of CSN has thrown in the towel and admitted defeat after spending almost 9 months in constant negotiations with ThyssenKrupp.

Second, a sale to ArcelorMittal without a resolution to the CSA plant doesn’t help ThyssenKrupp AG as much as a sale to CSN with some form of slab agreement which potentially provides some value to the Brazilian assets over the next five years.

The candle has been lit and is now sitting beneath a few executives seats in Germany, Brazil and England…

The next couple of months may prove to be quite interesting indeed.

As always your comments and your business are both truly appreciated.

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Final thoughts

I’ve had discussions with some of you lately about where and when sheet prices might bottom. Some of you say that hot-rolled (HR) coil prices won’t fall below $800 per short ton (st). Others tell me that bigger buyers aren’t interested unless they can get something that starts with a six. Obviously a lot depends on whether we're talking 50 tons or 50,000 tons. I've even gotten some guff about how the drop in US prices is happening only because we’re talking about it happening.

Final thoughts

We’ve all heard a lot about mill “discipline” following a wave of consolidation over the last few years. That discipline is often evident when prices are rising, less so when they are falling. I remember hearing earlier this year that mills weren’t going to let hot-rolled (HR) coil prices fall below $1,000 per short ton (st). Then not below $900/st. Now, some of you tell me that HR prices in the mid/high-$800s are the “1-800 price” – widely available to regular spot buyers. So what comes next, and will mills “hold the line” in the $800s?