Final Thoughts
Final Thoughts
Written by John Packard
July 21, 2017
Boy, am I receiving mixed messages – more than I think I ever have before during my 40 year plus career in (or covering) the industry. My opinion is the mixed messages are due to the interference in “normal” market operations by the Trump administration. This is especially destructive when promises are made for Section 232 recommendations and the date goes by with nothing. At the same time, the president is telling people that the steel industry is going to be so happy with what he is going to do, and nothing gets done. The creates indecision within the industry.
So, on one hand we have the domestic steel mills announcing higher steel prices and, at the same time I have a conference call with HARDI wholesalers who tell me that prices have barely budged and competition from service centers indicates no issues with inventories. There is plenty of steel on the service center floors according to SMU sources. MSCI sees it differently. More mixed messages.
When looking at our survey results we found the approximately 50 service centers responding to last week’s questionnaire reporting inventories at 2.3 months. Thirty-seven percent of those same distributors reported having “off the books” inventory which makes capturing the accurate inventory levels that much more difficult. We will have more on this subject in Tuesday evening’s newsletter.
Another busy week ahead. I will be in my office all week working on pricing, reaction from the market, foreign steel offerings and service center inventories. Stay tuned.
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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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?