Demand (or the lack thereof) seems to be the real culprit affecting the steel market and prices at this moment. I spoke with one of the larger service centers this afternoon and asked: would imports be reduced enough to impact U.S. supply and trigger a price spike? I asked what were the chances that the market would turn in 2016 and steel all of a sudden get tight?
The response I got was, “15% chance. Soft demand and over supply domestically – not to mention the international market will keep pressure on the market. Small pockets of volatility can be expected.” They went on to say, “If oil doesn’t come back – what drives demand?”
For those of you who attended our Steel Summit Conference in Atlanta at the beginning of September,Timna Tanners of Bank of America Merrill Lynch Research adjusted her hot rolled coil prognostication for 2016. Her new numbers are: 1Q 2016 HRC = $505 per ton, 2Q 2016 = $510 per ton, 3Q 2016 = $525 per ton and 4Q 2016 = $500 per ton. Average for the year = $510 per ton.
I will keep my comments short tonight.
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John Packard, Publisher
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I want to give a big shoutout to the good folks at the Fabricators and Manufacturers Association (FMA) for inviting me to their annual conference this week in Clearwater, Fla. I also want to give a special thanks to the FMA for awarding SMU founder John Packard with a lifetime achievement award – on that also gave me a chance to catch up with my old boss in person.
What are some “Black Swans” to watch out for? With the war in Ukraine entering its third year, your mind might understandably move to conflicts overseas. Here is one closer to home to consider: US trade relations with Mexico taking a turn for the worse. I mention that because the Office of the United States Trade Representative (USTR) dropped a (virtual) bombshell earlier this month.
Domestic prices have been sliding since the beginning of the year, and I don’t see any obvious reasons why the slide might stop this week. But let’s put the timing of a bottom aside for a minute. The question among some of you seems to be whether we’ll see another price spike, or at least a “dead-cat bounce,” before the typical summer doldrums kick in.
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.
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?