Final Thoughts

May 4, 2016

I had a long conversation with a service center this afternoon regarding the steepness of the rise in flat rolled prices out of the domestic mills. This buyer was frustrated with the pace of the increases and the unnecessary (in his opinion) tension the increases have caused between their company and their customers.

During the conversation he pointed to a prediction by World Steel Dynamics in a marketing piece for their June conference whereby they state, “What’s next? It’s time for “the chill” to set in, with the steel market going from ebullience to panic, or vice versa, depending on one’s seller/buyer perspective. Starting, most probably in May and, for sure in June, WSD expects the price to stabilize and, then, begin a substantial decline. The low point for the HRB export price this fall could be $300-$320 per ton.”

We (SMU) believe the Chinese steel mills have created a nice little bubble as steel prices soared higher in China over the last 8 weeks which have caused some of the idled capacity to come back online. The Chinese will undoubtedly over produce forcing prices down during the second half 2016. We believe prices will collapse in China as well. I don’t know if $300 per metric ton is the number or not. We are seeing Chinese domestic prices already starting to give back some of their gains.

The question is what will happen to the U.S. market and how quickly will it happen? Maybe the question should be what has to happen for the U.S. market to collapse? Remember, we are in a protected environment with restrictions on foreign imports. We are also in a supply constrained environment due to USS and AK Steel having idled some steelmaking capacity. I don’t think there will be a collapse in the U.S. market prices until at least late this year.

I would love to hear your opinions as I am sure there are many. You can send me comments at John@SteelMarketUpdate.com.

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

John Packard, Publisher