Lisa Reisman Discusses Support of Current Market Price Spike

Steel Market Update asked Lisa Reisman, Managing Director & CEO of Azul Partners, a number of questions regarding the recent spike in steel prices, how long it may last and what variables is their company looking at moving forward.

SMU Question: How long will the current spike in steel prices last?

Lisa Reisman: Truth be told we don’t forecast the lengths of price increase or decreases. Rather, we spend our time identifying the exact trend we are in so that buying organizations can adjust their sourcing strategies accordingly. We, like you don’t have anything more than an idea as to when the market will turn the other way. What we see today are a number of macro factors that are positively supporting commodity prices. Oil remains above $40 barrel, a critical support level. The USD has weakened and the Chinese stock market has improved. We’ve also seen improvement across the base metals complex.

Moreover, demand numbers from China have also breathed life into the markets. However, we remain uncertain as to the strength of the Chinese stimulus measures. Some data suggests demand will soften during the second half of the year. On the other hand, we have seen stimulus measures and their impact extend far beyond what Chinese authorities originally anticipated (we refer to the 2009/2010 stimulus package). We will be watching market signals closely to determine when markets have changed.

In April, we reported in our monthly outlook that for steel prices to make a significant upside move we like to see commodities rising across the board combined with a weaker dollar. Historically, every significant and prolonged uptrend in steel prices was supported by an up-trending commodity market.

Our May report called bottom (an end to the bear market) to the entire industrial metals complex.

The monthly forecast reports examine each of these variables to determine if market conditions change. As homework for the Steel Summit Conference in August, we’d like you to take our two month forecasting trial: https://agmetalminer.com/metalminer-monthly-metal-buying-outlook-2-month-free-trial/ In August at the summit, we will review “the homework” and discuss industrial buying strategies for the second half of 2016.

SMU Question: Does global supply trump the U.S. restrictions on imports (and if so, why?)?

Lisa Reisman: In the sense that current steel supply is like water it sure trumps restrictions on imports! If you consider an analogy it makes better sense – import restrictions can be substituted as the levee for Lake Pontchartrain. The water breeched the levee back during Hurricane Katrina. Import restrictions are merely a levee attempting to hold back the global glut of steel. The question we should ask is how sturdy is the levee? Right now, it appears pretty solid but we’ve only seen the preliminary determinations for the anti-dumping cases and not the final determinations. Moreover, the levee would be strengthened if the U.S. does not grant China Market Economy Status. We expect a resolution on that issue during 2016.

SMU Question: Will USS and AK Steel reopen idled steelmaking capacity and, if so, is that enough to tip the balance of supply/demand?

Lisa Reisman: We don’t spend a lot of time prognosticating whether or not a specific producer will bring back capacity. Instead we examine, on a monthly basis, the fundamentals such as capacity utilization, individual commodity price movements and volumes, and commodities as a whole to better determine where long-term trends will go.  If we see a price run-up combined with a demand uptick placing some longer legs under a bull market, producers will bring capacity back on-stream. The month over month market signals are things we pay attention to and regularly analyze.  All eyes on market momentum, investor sentiment, oil prices, Chinese demand and apparent demand…the signals will tell us whether or not USS and AK will reopen idled capacity.

SMU Question: How do you factor in service center inventories which appear to be balanced to slightly less than balanced at this moment?

Lisa Reisman: I view this as far healthier place for the market than where we were a year ago with service center inventory levels. However, what it should signal to all buying organizations is that service center inventory levels are more in line with historical norms…any demand spikes will create issues around supply surety. Buying organizations should all be hedged for the medium term at least (as advised in both our February and March monthly outlook reports) and should have been making nice with their service centers. Making yourself an attractive customer to service centers (e.g. profitable and easy to do business with) is critical when markets tighten, particularly when mills move to toward allocation.

SMU Question: What happens if there is a real spike in apparent demand during the 2nd half 2016?

Lisa Reisman: I think if that were to happen, it would lend a lot more credence to the current price run-up particularly in light of the question above on USS and AK Steel (if they don’t re-open idled capacity) and that’s why it makes sense to take this year’s price risk off the table, which we told our forecast subscribers to do. (See metalMiner Monthly outlook February 2016). As an example, we suggested locking some short to mid-term supply if prices breached $426/st (they did that in March).

SMU Question: How much of a spike would be needed to exacerbate the already supply short scenario?

Lisa Reisman: We’ve learned that small things can move markets and sometimes big things don’t. Another 10% price run-up could easily exacerbate the supply scenario…that’s why we pay such close attention to all industrial metals (not just steel) and commodity markets in general. Price movements in steel are correlated to other industrial metals and to commodities in general.  Most dollar-denominated commodities have been on the rise since early this year which coincided with a peak in the dollar. The strongest this year have been energy related commodities such as crude oil, precious metals (particularly gold and silver) and base metals.

SMU Comment: Lisa Reisman will be one of our featured presenters during our 6th Steel Summit Conference. She will not only discuss and forecast the steel markets but also other metals such as copper, zinc and aluminum.

Registration is open (for individual click here and if you are registering two or more people click here) either through our website or you are welcome to contact our offices: 800-432-3475.