Final Thoughts

Final Thoughts

Written by John Packard

June 6, 2016

I spent a good portion of my day today talking to traders (importers of foreign steel) as well as steel buyers. A number of questions were raised about the amount of foreign steel actually being offered as well as the amount of orders that were actually being placed. From my perspective, I am not seeing a “rush” to buy foreign steel with the possible exception of some specialty light gauge galvanized or Galvalume items where orders were cancelled for whatever reason, thus putting the end user in a bit of a bind.

A service center executive talked about the “multiplier effect” which is when there are multiple quotes out of the same mill from a number of trading companies. In reality there are only “X” amount of tons available (or needed) but it appears there is more tonnage being offered than what is actually real. We are seeing this with offers out of Vietnam and UAE which is probably why we hear about those countries more than others who may only have one or two traders representing their steels. Selective marketing vs. mass marketing. Something to think about when evaluating how much foreign is truly available for the U.S. market.

From the traders we are learning that large tonnage buyers seem to be content with the tonnage they have on order and their inventories. We are hearing from traders and buyers alike about the risks of buying at these levels. One trader told us that many of the big service center buyers with their indexed based purchases look at the potential for prices to begin tapering off prior to the end of 3rd Quarter (which affects the 4th Quarter reset number) and even though a $27.00/cwt hot rolled number of $33.00/cwt cold rolled number looks good against current domestic base prices we are talking about foreign material that won’t arrive for many months. I believe Vietnamese cold rolled is now out to the end of the year delivery. That lead time comes into play and the spread between $27.00/cwt HR and $32.00/cwt (which is $100 per ton) is good if you are confident that the market is going to continue to move up. Not so good if you are not a believer.

I spoke with a large end user this afternoon and was told that their opinion was that the balance of this year would be more like a “normal” year. That is, there would be a small, short summer correction followed by an uptick at the end of the summer before hitting the end of the year blues.

The second thing this end user told me was they could not pass through the 64 percent increase in galvanized steel prices and that they were taking more of their products to China to be manufactured…

There is a real cost to the domestic mills when sharp price gains come quickly and for reasons other than demand driven. Being a strong supporter of the domestic steel industry, it concerns me when I hear of business moving off-shore. Once it is gone it is very hard to get back.

I would like to hear from our readers and their thoughts on the subject. Where is the “sweet spot” for the domestic mills where they can make a reasonable return on their investment and at the same time prices are competitive enough to keep the steel users here at home instead of moving products overseas? You can send me your comments at: John@SteelMarketUpdate.com.

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

John Packard, Publisher

John Packard

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