Final Thoughts
Final Thoughts
Written by John Packard
May 7, 2014
You can expect to begin to read a lot of articles calling for prices “peaking” or about the subject of where do prices go from here. The expectation is that prices will move lower and everyone will have an opinion or theory as to why this will happen. Others will make the case for sideways or higher prices. Most likely those theories will be based on continued supply-side disruptions as they point to ArcelorMittal taking down their largest blast furnace for two months (June & July) and iron ore supplies taking time to be rebuilt.
Metals and Mining Analyst Timna Tanners, in a note to her clients, reported scrap prices are “poised to correct” with her contacts reporting May scrap prices down by approximately $15 per gross ton in the Midwest and sideways on other grades. She pointed out her contacts have cold rolled offers out of China delivered to the Midwest at $640 per net ton ($32.00/cwt) for early 4th Quarter. This is compared to the $810 per ton Steel Market Update has as our average for cold rolled this week from the domestic mills. Ms. Tanners conclusion was, “Imminent steel price downswing” would be felt during 2nd Half 2014. Ms. Tanners will be one of our speakers at this year’s Steel Market Update Forecasting & Steel Summit Conference to be held in Atlanta on September 3 & 4th.
Our scrap sources are advising shredded scrap as down $15-$20 per gross ton with primes (busheling and bundles) moving sideways. The Ohio Valley was not completly settled as of Thursday morning. A number of our sources reported that they are “bearish” looking out into June. Although one East Coast scrap yard told us that a down market in May and June are “seasonal moves” but it was still a bit early to call June numbers.
Other sources are advising us that US Steel Great Lakes – the repairs on the roof should be done and the mill is working on getting their blast furnaces and BOP back online. The process of bringing furnaces online after being on hot idle is not a simple process and the mill has to be careful not to damage the internal bricks. Our source is advising us that the goal is to start steelmaking back by Sunday or Monday of this coming week.
Above I spoke about whether prices have peaked and that there would be articles in the trade press about when will prices begin falling. On the flip side, there is another group which believes there will be a new round of price increase announcements and they tend to come out just when the market begins to think prices may have peaked. We asked our survey respondents if they believed the domestic mills would “officially” take prices higher during the month of May and 61 percent of the respondents believe there is yet another price increase in store for the market.
Our next workshop will be a new one: Managing Price Risk II: Strategies & Execution. This is a workshop for those in the early stages of trading HRC or BUS (hot rolled coil futures or busheling scrap futures) futures and options or would like to learn more prior to making trades and would like to know more about strategy and the cost and execution of trades.
As always your business is truly appreciated by all of us here at Steel Market Update.
John Packard, Publisher
John Packard
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Final Thoughts
Steel equities and steel futures fell hard after news broke earlier this week that the US and Mexico might reach an agreement that would result in the 50% Section 232 tariff coming off Mexican steel. The sharp declines didn’t make much sense, especially if, as some reports indicate, Mexico might agree to a fixed quota. They didn't make sense even if steel flows between the US and Mexico remain unchanged.
Final Thoughts
Even before the news about Mexico, I didn’t want to overstate the magnitude of the change in momentum. As far as we could tell, there hadn’t been a frenzy of new ordering following President Trump’s announcement of 50% Section 232 tariffs. But higher tariffs had unquestionably raised prices for imports, which typically provide the floor for domestic pricing. We’d heard, for example, that prices below $800 per short ton for hot-rolled (HR) coil were gone from the domestic market – even for larger buyers.
Final Thoughts
I want to draw your attention to SMU’s monthly scrap market survey. It’s a premium feature that complements our long-running steel market survey. We’ve been running our scrap survey since late January. And over just that short time, it’s become a valuable way not only for us to assess where scrap prices might go but also to quantify some of the “fuzzy” indicators - like sentiment and flows - that help to put the price in context.
Final Thoughts
I think there is an obvious case for sheet and plate prices going higher from here. That’s because, on a very basic level, the floor for flat-rolled steel prices, which is typically provided by imports, is now significantly higher than it was a week ago.
Final Thoughts
We're about to hit 50% Section 232 steel tariffs. What could happen?