Final Thoughts

Final Thoughts

Written by John Packard

For those of you who have been steady readers and members of Steel Market Update you know that the purpose of my Final Thoughts is for me to voice some of my thoughts and opinions on a wide range of topics. I am going to use this forum today to speak about what I am seeing and hearing out there and then I will discuss what “green shoots” I am seeing that I think our readers need to be aware of and think about. As always, I appreciate those of you who wish to become part of the conversation about what ever subject tickles your fancy and I am available at: should you have questions, comments or suggestions.

I heard a couple of interesting comments recently. One came from an executive at a large service center who reported that US Steel was looking for storage space. At the same time, I heard from second source who reported the number of slabs on the ground at USS Gary was unprecedented. I cannot independently confirm either of these comments at this time. At this moment we should not read too much into these comments but, I find them interesting and would appreciate any information that those of you who do business with USS might have regarding any building (or lack thereof) of inventories on their floors or elsewhere (slabs or finished products). Same goes for those who are dealing with ArcelorMittal on a regular basis – anything unusual happening there?

We have found some evidence of “greens shoots” using the terminology from the Great Recession. Green shoots then were when people were looking for news as to when the worst would be over.

Here are some of the “green shoots” that I have identified over the past week:

•    We received the following comment from domestic steel mill who requested to remain nameless, “Incidentally, I have put our commercial department on notice that we will be very selective on deals. Don’t need quite as many any longer. Lead times look acceptable to me, and scrambling for scrap has started. I won’t be fretting about ‘tons’ over Thanksgiving.”
•    Speaking of scrap we are hearing from our scrap sources that the mills who have come back into the market looking for further November tonnage on obsolete grades (other than prime grades) are paying $10 to $15 per ton more than the deals cut at the beginning of the month. Essentially, the new November numbers are back to October levels.
•    We heard from an OEM last week that they were being quoted galvanized spot product out of Nucor Berkeley at up $20 due to Berkeley lead times. They sent us the lead time sheet which referenced galvanized as being out to late January or into February. This supports the comment made above by our unnamed mill (which was not Nucor Berkeley).
•    As mentioned in our Wholesaler article in this newsletter, the wholesalers who support mechanical contractors working on residential and commercial construction jobs are reporting slowing conditions now but an expectation of stronger market conditions as we move into 2016, especially 2nd Quarter and beyond.
•    In our import article also in this evening’s newsletter, we are starting the see some of the early fruit (not just green shoots) from the trade suits. The corrosion resistant suit was the first to be filed and we are seeing galvanized import licenses as being possibly less than 50 percent of the 12 month moving average (which is 300,000 net tons per month). We are also seeing reductions in hot rolled, cold rolled and Galvalume based on import licenses through the 17th. It is my opinion that these numbers will move lower still.
•    AK Steel and US Steel have both warned of idling capacity. AK taking offline Ashland and USS Granite City. We will be watching carefully to see if they both follow through with the removal of steel making capacity by mid-December. Any reductions in supply – especially from integrated producers who cannot restart that capacity with the flip of a switch.
•    Then we have the issue of ArcelorMittal and US Steel negotiations with the United Steelworkers (USW). Both mills seem to be at an impasse with the union. At what point do they put their “final” offer on the table and if they were to go for a lockout how long can they last (ATI has been out since mid-August with similar issues regarding healthcare). If one (or both) of the mills decide that they must lock out the union what happens to supply, lead times and pricing?

The one other big key is demand. I mentioned construction in one of the bullet points above but, what if we start to see improvements in demand that are not expected at this time…?

I would like to hear from you. What keys are you watching and where do you think prices will be two weeks, four weeks and two months from now?

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

John Packard, Publisher

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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.

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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?