Tonight I thought I would present a question posed to me within the past couple of days and ask for your input in answering the question. How would you respond to this?
Has the steel industry in the US stopped following laws of economics or are we living the great delusion of “ok” demand? Consider the following facts:
1. Steel imports into US have trended down from June thru Oct meanwhile domestic production has also fallen –> suggests demand slowness
2. Despite trade cases and relatively few tons of steel actually coming from China, US steel mills have not tried raising prices
3. Service center shipments have trended down from spring onward and inventory levels are relatively high with MoS at around 2.8 – 3.0
4. From demand perspective – auto is doing well and construction is doing okay and these account for 60-70% of steel demand in USA
5. Assuming, turmoil in Machinery/Energy .. demand might have slackened by 5-7 MM tonnes (annualized) but idled mills account for ~ 4-5 MM tonnes
Will appreciate your thoughts. Am I underestimating the machinery/energy/other industry impact?
You can respond by sending an email to me directly: John@SteelMarketUpdate.com. You are also welcome to contact my office by phone if you are more comfortable speaking with me directly: 800-432-3475.
We will be reporting on the ongoing scrap negotiations in Sunday evening’s newsletter. Will poor demand at the steel mills trump slowing collection rates?
As always your business is truly appreciated by all of us here at Steel Market Update.
John Packard, Publisher
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Latest in Final Thoughts
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?
Everyone knows the old saying that “a picture is worth a thousand words.” Just because it’s a cliché doesn’t mean that it’s wrong. A lot of inked has been spilled trying to figure out why prices are falling now. I thought it might be as simple as this: Market dynamics in the fourth quarter (UAW strike, companies buying ahead of an anticipated post-strike price spike, etc.) pulled forward restocking activity that typically happens in the first quarter.
What a difference a month makes. There are a few full bulls left in the room, but their numbers are dwindling. We’ll release results of our full steel market survey tomorrow afternoon. I took a sneak peak at the data on Thursday. And more people than I expected think that US hot-rolled (HR) coil prices will be in the $700s per short ton (st) two months from now. Vanishingly few think prices will be above $1,000/st in mid-April.