Notes from New York City (Steel Success Strategies, etc.)

Written by John Packard

Once a year, Steel Market Update goes to New York City to rub shoulders and swap tales with about 400 of our closest steel friends. The initial attraction is the Steel Success Strategies conference hosted by World Steel Dynamics. Over the years a number of events have been formed by steel publications, futures markets and financial analysts.

On Monday evening SMU went to the Bank of America Merrill Lynch dinner which was attended by approximately 50-60 hedge fund managers and steel people. The steel people represented service centers, trading companies and scrap companies.

The steel people essentially are there to help educate and answer questions that the investors have about the steel and scrap markets.

The consensus of those speaking to the group was demand was “decent,” which is another way of saying business was good but most were not necessarily breaking records. Everyone admitted that the current price cycle was created by the restrictions of supply due to dumping suits and the domestic mills limiting capacity

Some of the interesting comments made during the dinner:

A trader of imported steel told the group that the run up in Chinese prices about 60 days back created a situation where the mills out of Vietnam and other countries pulled back from the U.S. market. This, according to this trader, will create a situation where cold rolled and galvanized imports will shrink during the months of July, August and possibly September. If correct, this could help to tighten the market at that point in time for commodity grade cold rolled and galvanized.

This trader went on to say the tonnage of import from these countries will increase going into 4th Quarter.

At the same time he reported the Turkish galvanized mills are sold out of galvanized. He also reported the galvanized market in Europe was “tight” although he thought hot rolled from Europe may begin to be offered in larger tonnages to the United States.

He advised Chinese hot rolled was currently being offered (not into the U.S.) at $350 per ton and he was not concerned about prices going any lower from here.

He predicted there would be a $40 price increase which would be made by the domestic mills sometime during the summer.

A large service center told the group that they need to be aware of CSN (Brazil), which was a 35-40,000 ton per month supplier would probably become a 10-15,000 ton/month exporter when they return to the market which would not be until February/March delivery 2017.

He had one of the quotes of the evening as he explained that after a huge run up in prices (we think he said $380 per ton on coated), “So, who gives a ____ if prices drift for a few weeks.”

He also said, “AK doesn’t know what a hot rolled coil looks like.” Another way of saying they have virtually no spot tons to sell.

This service center reported there being very little (his words were “non-existent”) hot rolled import being offered into his area of the country (Midwest).

He also reported that his company’s customers were beginning to back off buying steel on the “plus” side to their contracts.

He also said, “Seventy thousand tons of Chinese imports got replaced by twenty-five thousand tons of Vietnam.”

Another large distributor/service center who supplies a variety of end use markets reported:

Service centers are 27 percent of the total steel market and shipments in 2016 are down 8 percent. Service centers will take a long time before they restock. They will wait for better demand fundamentals. At the same time, if distributors don’t restock this is a bullish sign for the spot market.

Manufacturing – Ag (agriculture) is having a tough time and is heavy equipment which is way off (demand).

Energy – has not gotten any better and there is a large inventory hangover.

Transportation – rail, there is some business, MTA is making infrastructure investments.

Spot market (service center inventories) – if it is not vanilla it is not easy to find.

A tube mill manufacturing company reported that one of the issues they face (regarding imported steel) is that it is not easy to qualify/replace a supplier of 20-30 years with a new supplier…

“In the near term I see a constructive market. In the long run we are all dead.” He felt there would be a correction in pricing but it would take time.

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