Final Thoughts

Final Thoughts

Written by John Packard

I thought I would wait for my Final Thoughts area of the newsletter before broaching the rumor mill which has been begun questioning at what point do the domestic steel mills go out into the market and announce price increases. I had a number of conversations over the past few days with both consumers of steel as well as a couple of steel mills on the subject. From past experience we know that there are a couple of mills out there who have a tendency to leap before the market is quite ready to absorb an increase announcement. That is the reason why we have unsuccessful announcements from time to time.

From my perspective, and these are my opinions and not those of any steel mill, we could be about 2 to 4 weeks out before we see price announcements.The MSCI shipment and inventory levels will come out next week. It is my opinion that the inventory overages are aggressively being challenged and it is only a matter of time before holes begin to develop. I believe SMU has forecast for our Premium customers that late April and into May lead times would be about the time we expect service centers to come back into the market in a big way.

However, our optimistic approach to the inventory reductions may be a bit hasty – especially in the Southwest/Plains states associated with the oil and gas industries. I spoke with an executive with a trading company this afternoon who reported that the inventories being held in Houston for the energy markets were originally meant to last two months. “Two months of inventory has now become five months,” is what he told us. We were told the bids to buy new hot rolled are at $420 CIF Duty Paid the Port of Houston. However, no traders are close to offering those kind of numbers. We were told the traders were in the $460-$480 offer range and receiving no orders. So, they know they must sit back and be patient.

From a service center located in the oil patch area we heard that the mills are “grim” and that the reductions taken and the lower capacity utilization rates have had zero impact on lead times. I was told today from a service center who had been speaking to a number of his mill suppliers today, “”…In each case, there was no attempt whatsoever, for any of them to put any sort of positive spin on any aspect of this market. Many of the mills I spoke with have curbed production, and all of them said that so far, there has been no positive impact on lead-times at all. I was truly surprised to learn this, given that domestic production is below 70%, and given that demand continues to be described as “strong”, save Energy and Agriculture. It’s unlikely we’ll see noticeably higher demand levels from here, since increased Construction demand can be offset by lower summer Auto builds. In that respect, we have the market we’re going to get, which begs the question: “what is the size of the surplus, and how long will it take to come down?”.

This buyer continued, “While there is certainly a dramatic drop in new import orders, which will have a positive effect down the road, we’re definitely in the muck right now. Given huge the bottlenecks at many ports, I’m concerned that the physical arrival of material into service centers and OEM’s will continue to be delayed for months to come, thereby masking what likely is a higher level of tons than we see reported by MSCI monthly reports. I also think that the steel demand fallout from the crash in oil prices is still growing, with the 2nd and 3rd tier players in the manufacturing chain tied to Energy, now facing decreased future business as existing projects are completed.”

I am getting mixed messages. As I speak to service centers (especially in the Midwest and Ohio Valley) I am hearing of there being a number of inquiries out there from their customers looking to lock in prices at these levels. Other areas are not so eager to book any new tons.

I heard similar comments from a couple of mills over the past few days that their customers were beginning to book April orders and looking at May depending on product. A couple of the northern mills told us that there are some nice inquiries out there and the mills I spoke with feel it is only a matter of time before the inquiries will turn into bookings. However, no steel buyers really want to take anymore March tonnage.

So, I guess I am cautiously optimistic and I want to wait and see what the MSCI data (and our next survey which will also be next week) looks like and then we can gather our thoughts to see if there is a turn of momentum coming at any point in the near future.

I appreciate any comments you might have on the subject. You can reach me at:

As always your business is truly appreciated by all of us here at Steel Market Update.

John Packard, Publisher

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