Final Thoughts
Final Thoughts
Written by Brett Linton
October 22, 2014
I spent a good portion of this week either in Louisiana or traveling to and from the state. I attended an energy conference at Louisiana State University (LSU) which I found to be fascinating. I found out how little I knew about the various drilling operations for oil and natural gas and how far the U.S. has come over the past 10 years in spite of what obstacles were placed by the government. There is still a lot of shale plays that have not been drilled and that includes a good portion of the Haynesville field located in Louisiana and Mississippi.
Senator David Vitter of Louisiana told the assembled group how we are living through an “energy revolution” and that this surge of oil and gas is a “historical game changer.” Senator Vitter said, “Its the biggest boom to the economy since the dot com movement and maybe even before that.”
Senator Vitter also told the group that the mid-term elections may force the president’s hand on the Keystone Pipeline approval. A bill has already passed the House of Representatives and if the Senate goes Republican there are enough Democrats to pass a bill in the Senate with the 60 votes needed.
So, as they say in the South – go to the polls and vote early and vote often… (my words not the Senator’s).
What is coming along with the energy revolution is an industrial renaissance. Denise Palmer Huggins with the Center for Energy Economics at the University of Texas pointed out 123 huge industrial projects which are on the drawing boards and most of them will ultimately be built if the price of natural gas remains reasonable and government red tape doesn’t become too onerous. She also pointed out that there will be a lot of natural gas exported to Mexico via pipeline.
Paul Lowrey has been doing some research on the size and scope of the energy markets and he has told me that energy is now the largest consuming segment of steel industry surpassing automotive and the current construction market. He has promised to write an article on the topic for Steel Market Update in the not too distant future.
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Brett Linton
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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?