SMU Data and Models

SMU Steel Buyers Sentiment Index: Future of Greater Concern

Written by Tim Triplett

Both current and future sentiment among flat rolled steel buyers saw little change in the past two weeks as the market paused to see how the maneuvering on the trade front plays out. In general, buyers’ attitudes remain at optimistic levels but are below year-ago levels, which SMU finds concerning. We are finding a growing skeptisim as buyers and sellers of flat rolled steel deal with higher steel prices, restrictions on foreign steel imports and a tremendous amount of uncertainty associated with President Trump’s trade policies. Steel Market Update’s Steel Buyers Sentiment Index is designed to measure changes in buyers’ attitudes, which offers insight into their likely decision-making.

Current sentiment, measured as a single data point was the same as in mid-March at +66. Measured as a three-month moving average, which helps even out the highs and lows, the Current Sentiment 3MMA dropped by about a point to +69.17. That compares to a peak of 74.17 in April 2017.

Future Steel Buyers Sentiment Index

SMU’s questionnaire also asked steel buyers to assess their company’s chances for success three to six months down the road. Future Sentiment indexed as a single data point also remained unchanged at +57. However, the three-month moving average for Future Sentiment, at +63.33, has been eroding since early February when it registered +72.83, suggesting the current uncertainty makes buyers more wary about market conditions in the coming months. The future 3MMA is at the lowest point since mid-December 2016 when it was +63.17. As you can see by the graphic below, Future Sentiment is trending well below year ago levels and is indicating there is “risk” asscociated with uncertainty about the future due to foreign steel import tariffs, higher costs and an unsure political climate.

What Respondents are Saying

Some respondents were very bullish. “We continue to have strong demand and to break records. We had our largest sales month in company history in March.” But most are concerned about the ongoing volatility and uncertainty in the market:

  • “Will the Trump tariffs start a trade war? If so, all bets are off.”
  • “There’s still way too much uncertainty. Trade issues/war will continue to affect the overall economy and could lead us into recession.”
  • “High steel prices and threats of trade wars are a big concern.”
  • “It’s very difficult to sell steel at current prices.”
  • “Provided we can get enough steel to supply to our account base.”
  • “It depends on Section 232 and our ability to collect from our end-user customer base.”
  • “We’re concerned about the potential for a severe price correction.”
  • “We’re concerned large price increases will reduce demand and third-quarter bookings will be soft as OEMs built up a large amount of inventory to hedge on price increases.”
  • “Potential exemptions to Section 232 have allowed market participants to relax somewhat. However, Trump’s indecision and comments along the way – both promising and discouraging – will keep the market on edge.”
  • “Our business is based on the spot market – speculative in nature. We have a very low inventory (lowest in 10 years). We need a clearer picture on where prices will be settling with all the exemptions that were granted.”
  • “I’m starting to get concerned that we could be at a pricing peak. Whenever the peak hits, we’re going to be fighting to hold on to what we’ve gained this year.”
  • “We’re optimistic if everything stays the same – which it won’t!”

About the SMU Steel Buyers Sentiment Index

SMU Steel Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat rolled steel products in North America regarding how they feel about their company’s opportunity for success in today’s market. It is a proprietary product developed by Steel Market Update for the North American steel industry.

Positive readings will run from +10 to +100 and the arrow will point to the righthand side of the meter located on the Home Page of our website indicating a positive or optimistic sentiment. Negative readings will run from -10 to -100 and the arrow will point to the lefthand side of the meter on our website indicating negative or pessimistic sentiment. A reading of “0” (+/- 10) indicates a neutral sentiment (or slightly optimistic or pessimistic), which is most likely an indicator of a shift occurring in the marketplace.

Readings are developed through Steel Market Update market surveys that are conducted twice per month. We display the index reading on a meter on the Home Page of our website for all to see. Currently, we send invitations to participate in our survey to more than 600 North American companies. Our normal response rate is approximately 110-150 companies. Of those responding to this week’s survey, 40 percent were manufacturers and 47 percent were service centers/distributors. The balance was made up of steel mills, trading companies and toll processors involved in the steel business. Click here to view an interactive graphic of the SMU Steel Buyers Sentiment Index or the SMU Future Steel Buyers Sentiment Index.

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