Final Thoughts

April 29, 2016

Last year in conjunction with Steel Success Strategies I had a lunch with a number of steel buyers, executives and two derivatives traders (one being Andre Marshall of Crunch Risk, LLC). We all gave our opinions as to where we thought benchmark hot rolled coil would be by early June 2016 when we will return to New York City. Andre and I were the two most bullish out of the group, believing HRC would average $570 or higher. With the current average at $530 per ton (SMU) and with at least one mill (NLMK) offering $600 per ton hot rolled it appears we will make $570 before the end of May.

In an email exchange late last week Andre made some interesting observations and he agreed to let me share some of them with my readers:

“Clearly a lot of questions/discussions from folks regarding where this is headed. Within the context of the scenario at hand – supply driven, import tariffed yada yada – I tell people to step back and look at the range over the last 8 years. We’re all pretty excited about $530 trading spot!!, $50/GT up scrap, $590 posted Nucor, $600 posted NLMK!, but within a range of $360-$1000 over time, $530, or even $600, is not that crazy a price, and futures trading in low $500’s in Cal ’17 mos. looks like pretty reasonable value on an historical basis (if we can remember $560 was our old cyclical floor here). The world has thrown up trade barriers, Mex, U.S., India, Turkey … and so each regional zone gets more expensive the less free flowing the stuff is. I for one think that imports are a non-factor here for as long as the tarrifs are in place. For even if the import window opens back up the product and logistical issues are just too great to have the same impact as before, or even close, for the countries left who can still ship.”

I made similar comments in an article about a week to ten days ago when I shared our historical average for HRC (hot rolled coil) prices going back to January 2009. No manufacturing company should fear $530 per ton hot rolled – although I understand their preference is for the lower their costs the better.

In the email, and later phone discussion I had with Andre, we discussed various risk factors for steel buyers right now:

1) Demand (tepid demand is bullish for steel…?)

2) Supply – we have to expect US Steel to bring Granite City back online sooner rather than later. Ashland may not come up as fast.

3) Imports – China is out and with most offers less than the $70 to $100 per ton spread needed between domestic and foreign prices – this is another bullish sign for the market.

These scenarios will still be in play come the end of August 2016 at which time we will have one of the strongest group of economists, forecasters, trade experts and steel people ever assembled at our 6th Steel Summit Conference which will be held in Atlanta on August 29-31, 2016. Registration is open either on our website: www.SteelMarketUpdate.com or you can contact our office and register directly with us: 800-432-3475. You can also send an email to: info@SteelMarketUpdate.com with the names, email addresses your company and we will send you an invoice. Bottom line, we want to see you in Atlanta!

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

John Packard, Publisher