Final Thoughts
Final Thoughts
Written by John Packard
March 12, 2018
Mexico, Canada, Australia … (Europe, Russia, Turkey?) … which will be the next countries to negotiate directly with President Trump, who appears to be less interested in building steel jobs than getting trade concessions (or personal acknowledgement) out of many of our allies.
With President Trump, you need to review his Twitter account should you miss an excluded country or negotiation position:
In a more recent Tweet, President Trump has suggested that Wilbur Ross is negotiating with Europe so they can be excluded from the steel and aluminum tariffs.
So, my question is: At what point does the Section 232 tariff become irrelevant?
And, what will happen to steel prices once there is more supply than demand? Could we see another 2008-type destruction of steel prices? I think, yes, since the prices are not running up due to true cost fundamentals and will need to reset once supply is back in balance (or steel buyers no longer fear running out of steel and begin cancelling their double-orders).
Key countries to watch when it comes to exclusions: Russia and Brazil (slabs), South Korea (OCTG and line pipe), Taiwan (Galvalume), Japan and Germany (automotive steels), South Africa and India (light-gauge galvanized).
Here is something from a large service center that I have also heard directly from end users: the mills are already destroying their core customer base. “Biggest immediate impact of 232 is extremely concerned customers. Having multiple conference calls, emails, etc., to educate customers on what’s happening. Interestingly, already hearing of strong interest by companies to immediately research viability to source metal parts/components/segments in Mexico and Canada. Yes, that’s right-Canada. These are 2 closest countries and therefore simplest supply chains to consider. There’s an overwhelming feeling of incredulity about the mills’ raising prices without impunity in sync with developments. In this vein, one mill source confided that they think HR goes to $900+, but they’re trying to move up each week so as to not look like they are taking advantage of the situation. I assured him it was too late for that…”
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John Packard
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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.
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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.
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