Final Thoughts
Final Thoughts
Written by John Packard
May 30, 2018
It has been an incredibly busy day. The Trump administration was busy taking care of our “friends…” Canada, Mexico and the European Union are no longer excluded from the 232 tariffs. I got a note from a mill friend of mine who laid out the scenario as he saw it:
“The irony of this whole thing is that Trump has now given an advantage to the countries that are traditional dumpers, like Russia, and a disadvantage to good trading partners like Canada by putting the same penalties on them. If you compare coated, Russia has a low cost of production and certainly would have lost a trade case because they often resort to very aggressive prices when selling. Now they can sell unlimited volume with a 25 percent duty on a low cost. Brazil has lost all trade cases in flat, and surely would have lost a coated case, too. But they can sell duty free under a quota. Canada never sold cheap steel, has an integrated supply chain within NAFTA, would not have had a dumping case, yet it is at a huge disadvantage over those other two!”
This afternoon, Steel Market Update revised our SMU Price Momentum Indicator to “Higher” from Neutral. The reason being the Trump administration manipulation of the steel supply. I will have more on this in Sunday evening’s issue of SMU.
Tomorrow will be a busy day for Steel Market Update. Your feedback on what is happening in the market is much appreciated.
As always, your business is truly appreciated by all of us here at Steel Market Update.
John Packard, President & CEO
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?