Final Thoughts

Final Thoughts

Written by John Packard


The question being asked is once the sale of the ThyssenKrupp Steel USA plant in Calvert, Alabama is closed and ownership transfers to the ArcelorMittal (AM) and Nippon Steel Sumitomo Metals Corporation (NSSMC) joint venture what impact will it have on the flat rolled steel markets?

My opinion is the immediate impact will mostly be psychological in nature as buyers and sellers of steel try to read into the transaction. Initial reactions I have heard range from an expectation of an immediate price increase to at least a continued firming of the current pricing structure. Since the deal will not close until sometime during the second quarter 2014 it is perhaps a bit premature to expect conditions to immediately change at TK USA.

Longer term changes or market adjustments may have more impact on future supply and demand scenarios. This will also depend on what the DOJ and FTC decide regarding ArcelorMittal continued ownership of their existing North American facilities.

Elimination of ThyssenKrupp Steel USA and the integration into the ArcelorMittal commercial department is expected to result in a more disciplined market price structure. TK USA is well known as the lowest priced flat rolled mill due to its position as the “new guy on the block” coupled with failures to deliver due to software and other issues which plagued the mill when it first came online. The mill continues to be aggressively priced as they work to build their order book.

My expectation is ArcelorMittal will attempt to run the mill as full as possible. This may result in some interesting competitive dynamics as AM competes with Nucor and Severstal Columbus as well as USS Fairfield in the south. As one steel buyer put it to me in an email this afternoon – who is going to roll over and give market share to ArcelorMittal?

Another issue raised by a steel executive with whom I had dinner recently. He reminded me that there could be some credit line issues with existing customers of ArcelorMittal as they absorb the ThyssenKrupp exposures onto their books.

We will broach this subject further in our next SMU market analysis questionnaire which will begin on Monday morning at 8 AM ET.  If you receive an invitation to participate please take a few moments to provide SMU your thoughts and opinions on this and other subjects of interest to the flat rolled steel markets.

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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?