Final Thoughts
Final Thoughts
Written by John Packard
February 13, 2017
We have a number of articles in tonight’s newsletter about China and Chinese steel and iron ore prices. Why do we pay so much attention to one country? China controls 50 percent of the world’s steel production. The country has somewhere around 300 million metric tons (330 million net tons) of excess capacity. They have been trying to export their way out of the hole that we could see growing and in the process save jobs and keep the masses from focusing any discontent on the government. China is a problem that will not easily go away and one we must watch carefully. We have to expect China to take the actions taken by the United States to the WTO and, what will happen to the domestic steel industry should the WTO rule against the U.S.?
I was meeting with a CEO of a manufacturing company yesterday and we started to talk about the steel industry comparing it to the dysfunctional airline industry of the 1980’s and 90’s. The airline industry did not become profitable again until they understood who their customers were and how to maximize the revenue for each and every seat. How many flights have you been on lately with open seats? During our conversation this CEO told me, “The domestic steel industry is not set up to make a profit long term.”
One of the items we discussed was pricing and pricing power. His company had not issued a price increase in a number of years. He spoke about the long term relationship his company has with their customers and he quoted Jeffrey Gitomer regarding customer loyalty. The CEO told me, “Customer service is worthless. It’s all about Customer Loyalty.”
We also spoke about my business, about Steel Market Update, and what we have been doing correctly (if only by accident, I can’t take all of the credit). He told me, “The best way to get new business is by referral.” Most of you know SMU does not have a sales force and we rarely go out and personally solicit new business over the phone. Our newsletter and our business have grown because we have loyal customers who tell others about our newsletter and services. I thank each of you for your kind words and deeds which has helped us grow over these past 9 years (of course, now go out and sell, sell, sell SMU).
The SMU Price Momentum Indicator is still at Neutral. When we moved to our Neutral position I told everyone that prices could go in either direction. Normally that direction is the opposite from where it was just before being moved to Neutral (in this case we went from Higher to Neutral) but it is not a sure bet that is the direction prices will go. From my position, and based on what I am seeing in the marketplace, I am still bullish on the steel industry and the prospects for demand and constrictions of supply. To me it seems the odds of prices moving higher from here (over the next 30-60 days) are a little better than the opposite direction. Could we see a $5 or $10 adjustment, sure. But, I think the mills have a handle on their sales people and their order books.
Of course, I reserve the right to change my mind…
Our Steel 101: Introduction to Steel Making & Market Fundamentals workshop to be held on April 11-12, 2017 in Toledo, Ohio is about 50 percent sold out. You can find information about the workshop on our website or you can contact us at 800-432-3475. We will be touring the North Star BlueScope mill as part of this workshop.
Registration (single and group) is open for the 7th SMU Steel Summit Conference which can also be done online or by contacting our offices at 772-932-7538 or 706-216-2140. We have about 60 percent of the speakers confirmed and invitations out there for a number of other speakers. I tend to wait as long as possible to totally complete the program to make sure our conference is as current and valuable as possible. I don’t know if you are aware, the annual reviews of the AD/CVD suits are coming up just prior and during our conference. We are hearing from at least one mill that the penalties could be increased on some of the countries who continue to ship to the U.S. At the same time, there may be some foreign mills who are able to get reductions in their rates. We already have a strong panel able to tackle these issues as well as ones presented to us by the actions of the Trump administration between now and then. I highly recommend you register early and tell your friends in the industry that Atlanta is the place to be on August 28, 29 and 30th. Details are on our website including the new speakers as they get added and a listing of companies who attended last year’s event.
I also want to thank Nucor for becoming a sponsor to this year’s SMU Steel Summit Conference and adding their name in support of our conference. They join Pacesetter, Mill Steel, Bank of America, Heidtman Steel, Kenwal, Alliance Steel, Magic Coil Products and MidWest Materials. We still have a few sponsorship spots available. Contact me at 800-432-3475 or by email at John@SteelMarketUpdate.com if you have interest or any questions.
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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