Final Thoughts
Final Thoughts
Written by John Packard
June 1, 2016
My understanding is most of the mills canceled any scrap not yet delivered by the end of May. They do this when they believe scrap negotiations for June will result in better prices for them. It is still very early in the negotiation process, especially considering that Monday was a holiday. One scrap expert told me this afternoon, “Originally thought -10 on primes, -30 on shred, -20 on cuts. I don’t think it’s that bearish right now though. Primes may end up sideways. With export, cuts probably stay 20. Shred may come back to 20 as well. Shred will certainly hit a floor with drops. Flows aren’t that great.”
So, the door is still open and we will need to watch and wait. If shredded scrap drops and then settles in at that number (or higher) then the negative influence on prices may be muted.
I was asked this evening if our Price Momentum Indicator is still pointing toward higher prices. The simple answer is “yes” but, the more complicated answer is looking at foreign hot rolled offers at $540-$580 per ton and the domestic numbers at $620-$640 per ton (average $630), the spread is $50 to $80 per ton. There may be room for the domestic mills to move another $10 per ton but, I would think without an increase in demand that should be a solid fair number for the domestic mills. So, my gut tells me to leave the indicator pointing toward higher prices on hot rolled but the reality of the market should be for stability at current levels (+/- $20/ton).
I am having a much more difficult time with cold rolled and coated steels. The spread between HRC and CRC/GI/AZ have grown to be a little excessive. At these levels either the end users are going to abandon manufacturing here in the U.S. or foreign product is going to come into the country in growing amounts. Over the short term the mills are controlling supply and in the process prices. This keeps the Momentum Indicator pointing toward higher prices. Logic and past experience tells me that when base prices get into the mid-$40’s and beyond steel buyers look for alternatives. The steel mills should be happy at $40.00/cwt base prices ($800 per ton) which is a healthy $170 per ton spread over HRC base pricing (the mills are asking for CR/coated base prices as high as $44.00/cwt or $880 per ton – you do the math regarding the spread between HR and CR/Coated). I would like to move my indicator to sideways – that seems like it would be the smart move but, that is just my one opinion and you know what they say about opinions…
In case you haven’t seen our latest videos from last year’s Steel Summit Conference, you can click here to see view them. There are actually four videos on YouTube; two of them are testimonials and two are of speakers from last year who are also speaking again this year (Alan Beaulieu and Lewis Leibowitz).
If you want to register for our Steel Summit Conference, visit our website: SteelMarketUpdate.com or feel free to contact our office: 800-432-3475.
As always your business is truly appreciated by all of us here at Steel Market Update.
John Packard, Publisher
John Packard
Read more from John PackardLatest in Final Thoughts
Final Thoughts
Steel equities and steel futures fell hard after news broke earlier this week that the US and Mexico might reach an agreement that would result in the 50% Section 232 tariff coming off Mexican steel. The sharp declines didn’t make much sense, especially if, as some reports indicate, Mexico might agree to a fixed quota. They didn't make sense even if steel flows between the US and Mexico remain unchanged.
Final Thoughts
Even before the news about Mexico, I didn’t want to overstate the magnitude of the change in momentum. As far as we could tell, there hadn’t been a frenzy of new ordering following President Trump’s announcement of 50% Section 232 tariffs. But higher tariffs had unquestionably raised prices for imports, which typically provide the floor for domestic pricing. We’d heard, for example, that prices below $800 per short ton for hot-rolled (HR) coil were gone from the domestic market – even for larger buyers.
Final Thoughts
I want to draw your attention to SMU’s monthly scrap market survey. It’s a premium feature that complements our long-running steel market survey. We’ve been running our scrap survey since late January. And over just that short time, it’s become a valuable way not only for us to assess where scrap prices might go but also to quantify some of the “fuzzy” indicators - like sentiment and flows - that help to put the price in context.
Final Thoughts
I think there is an obvious case for sheet and plate prices going higher from here. That’s because, on a very basic level, the floor for flat-rolled steel prices, which is typically provided by imports, is now significantly higher than it was a week ago.
Final Thoughts
We're about to hit 50% Section 232 steel tariffs. What could happen?