What I Learned From Steel Buyers Today

Written by John Packard

John Packard, Publisher, Steel Market Update

Today I spent a good portion of my time wandering around the United States and Canada soliciting information about flat rolled steel pricing, lead times, Section 232 and anything else steel buyers wanted to talk about. I thought the quote of the day was from a manufacturing company who told me, “If you know where to look, you can find what you need but, you have to need and you have to look.”

This same buyer also told me, “Your article today on the G20 and its effect on delaying outcome of 232 was spot on. Canada and Australia have both now secured exemptions…so, cracks in the foundation are starting to show. James Mattis [Department of Defense] has announced his own parallel study [on steel], so that can’t be a good thing for supporting the Department of Commerce.”

A manufacturing company provided some insights to Section 232 and how it may impact manufacturing in the United States, “Two weeks ago, I sent out a quote for two large-volume mill-sized galvanized items and asked for a 90-day fixed price for a quarterly commitment. Those mills that did quote, and not all did, gave prices well above what the current CRU indicated. There’s no doubt that the mills feel emboldened by the 232 investigations and are fairly confident they will only benefit them.

“The facts of the matter are a bit more complicated. I am quite sure that President Trump and Secretary Ross both thought this would be a quick win that could be bandied about as ‘look at this, we saved American jobs and are making America great again!’ The truth of the matter is this is much more complicated than they anticipated. The G20 meeting further emphasized this as several of the members warned Trump of a possible trade war this could start.

“If they are successful in putting up a wall around the U.S., and the mills would like nothing more, the results would likely be devastating. Should foreign steel be completely blocked from entry, the U.S. mills will likely jack up domestic pricing as far and as fast as possible. This will lead to massive outsourcing of parts in lieu of continuing to buy overpriced U.S.-made steel to produce those parts. This will take time, though, and the true impact will not be felt for approximately 24 months. Rest assured, though, that should it happen, the change will be almost permanent and very hard to reverse.

“In an effort to save and strengthen 10,000 steel jobs, the administration is putting at risk up to 6.5 million manufacturing jobs. Now, of course, those all won’t disappear, but there will definitely be a big impact as parts and components, or complete assemblies, leave the U.S. for less costly outsourced locations.

“For now, like the mills, we’ll wait and see.”

The purchasing director for a steel service center advised that he had spoken to both ArcelorMittal and Steel Dynamics this week. “Neither one was anticipating any price increases, they were both very low key on the 232,” he said.

A steel mill provided some insights into the distributors when we were told, “…Losing orders to distributors that have a giant mountain of imports – giant….”

A flat rolled distributor told me this afternoon, “$30.50 HR, $40.50 CR and 40.50 HDG spot. Market is in a bit of a holding pattern. It appears non-action on 232 is more powerful than an announcement at keeping imports out and prices high.”

The president of a large service center group told me, “I think most mills still believe that action will be taken and it will restrict foreign supply to the U.S. Obviously, they’d like to understand the new rules of engagement moving forward, but in the interim foreign offerings have dried up as most importers do not want to assume the risk of potential duties or quotas. Although import volumes have been above the record 2014 levels for the past four months and look to be coming in high again in July, we’d expect the flows to diminish dramatically starting in late August, which is really about the domestic lead times today for coated and CR. Essentially, the delay will stem the flow moving forward and act as an import restriction until Commerce and the administration make their announcement. The mills’ behavior today is to limit the volumes and available rollings to very short-term offerings in an effort to capture any potential upside, when and if the 232 announcement is made. CSI [California Steel Industries] only opening their books in two-week increments is an example of this.”

The same service center also told us, “Lead times are beginning to grow slowly as we get out of the historic slower July timeframe, but we haven’t seen any huge jumps, yet. A slow automotive book and the significantly large volume of imports has probably offset any inventory hedging to date.”

My runnerup for quote of the day came from a plate distributor, “Weaker than expected right now given the optimism that was and now isn’t.”

A manufacturing company that buys essentially all foreign steel for its plants told us, “I have no clue what the government is going to do with imports, and it becomes less clear as the days go by, but I cannot justify switching to domestic sources because of what may happen. I am hoping that the government will come to its senses and think beyond the mills, and truly consider the overall impact to the economy they may cause.”

Another manufacturing buyer said about the market, “Nothing has changed. Mills are quiet, hiding in the weeds. Embarrassed for their earlier unnecessary giddiness, I suspect.”

This evening I learned from a service center executive, “Yes, lost confidence at the moment [steel mills], and too soon to know regarding how they’ll handle near-term negotiations. Things have gone very quiet, and mills aren’t panicking yet, but the bluster is gone from their voices. There’s a CLEAR understanding by all that the mills went “all-in” on 232, and if the outcomes are not draconian, then they have nothing to fall back on. The mills were speaking with very high certainty a couple of weeks ago that the 232 case results were coming at any moment, and allocation of supply would be just around the corner. What a difference 2 weeks has made….”

From a large Midwestern steel fabricator I learned this evening, “We are getting quoted for .375″ to 2.00” ASTM ASME A36 (20 to 200 tons) $ 37.00 CWT delivered. (225 to 1000 tons) $ 36.00 CWT delivered & (1,000 to 3,000 tons) $ 35.50 CWT delivered from the big 3 plate suppliers (Arcelor – Nucor – SSAB). The recent price announcement for Plate ( $ 30.00 ton ) did NOT stick, but stopped the price from falling any further. Demand is average for this time of year (June – July – August), but believe the 3rd and 4th quarter to be stronger.

“The USA plate mills are sitting and waiting for the Section 232 results from Wilbur Ross. The President has another 90 days AFTER Wilbur’s announcement on section 232 to make final decision. If Wilbur Ross doesn’t include Finished Fabricated Goods, manufacturing will continue to decline and plants (manufacturers) will continue to close. We (manufacturing) are getting very frustrated that tax cuts, tax reform and Infrastructure isn’t getting done under this administration.”

I heard from approximately 30 companies during the course of the day. To be fair the split between those reporting weakening prices and those reporting the mills as being firm and not negotiating was split about 50/50.

So, we sit and wait to see what shoe will fall next…

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