Steel Products Prices North America

Will Prices Decline by Year-End? Steel Execs Divided

Written by Tim Triplett

Trading in steel futures shows many companies betting that prices will decline as the year-end approaches, following the normal seasonal pattern. But current market conditions, under the influence of unprecedented government trade action, are anything but normal, leaving steel executives deeply divided over what to expect.

Steel Market Update canvassed the market this week, asking sources: What is the driving force behind steel prices and do you agree with the futures markets that prices will drop significantly between now and the end of the year? Following are some of their more insightful responses (published anonymously so they could speak frankly):

Yes, Prices May Drop

  • “The futures market appears to be pulling back by year end in response to the groundswell against the growing list of tariffs (Section 232 and 301). There are bills being introduced to limit the president’s authority in the name of national security, as well as challenging the constitutionality over the use of Section 232 for these tariffs. Trump isn’t going to back down; in fact, what’s really interesting if not unprecedented is that he doubles down each time he’s challenged or threatened with force. We all know that at some point this will end though, and when it does it will result in a wide pullback of steel pricing, and most likely the inputs that drive steelmaking costs, as well.”
  • “Driving forces? The tariffs, the amount of foreign coming in (or not coming in), inventory levels, union negotiations, new contract negotiations for 2019 for service centers and end users. Will the mills move forward with current contract extensions or will the mills try to improve their returns on contracts and also restrict volumes? The futures market appears to be reflecting what the market typically would expect to see based on past historical cycles for year end. I agree with the futures market, if steel follows the historical cycle patterns. The issue I see is that the tariffs are causing a change to the historical patterns and market reactions.”
  • “Everyone is concerned about the $250+ ton difference between the U.S. and the rest of the world. Section 232 is a complete mess on what gets approved or not, and the Trump administration is so unstable we are all concerned about what may happen next. Our credit lines are pushed to the max (same amount of inventory tons as in January now cost $8 million more). It’s time to run down inventory and wait and see what happens. We all expect a softening in the fall/winter, as the futures show. Domestic mills are happy, posting record profits, but that will be short lived.”
  • “Conditions seem to be softening and we expect the trend to continue. While we do expect reduced imports in the short term, we anticipate increased activity as we approach Q4. Additionally, you have another furnace restart at Granite City and JSW becomes a factor late in the third quarter [boosting supply].”
  • “A price drop by year end is certainly possible. I think we will have a better feel for the direction of the market when the mills close September bookings. If it takes longer to close the books, we will see some deterioration of pricing. Cold roll is the weak product now and galvanized will follow when the HVAC season slows down and we move out of the construction season.”
  • “We placed spot tons last week under our current contract above our allocated amount. I requested a two-week lead time for the added tons. We will see what happens.”
  • “The main forces behind domestic pricing are tariffs and greed. Prices will fall. The tariffs don’t make sense and some force will cause them to go away.” 

No, Prices Will Not Drop

  • “Hot rolled remains strong. SDI and Nucor have very little to offer. Other mills are chugging along; $45 is still the number.”
  • “Driving force: demand. The futures market is most likely wrong· futures depend on volatility, and what we have now is a fairly stable market.” 
  • “Even if NAFTA tariffs are dropped, I don’t see any impact on U.S. pricing. I know many are ordering to the minimum levels on their contracts right now, which is freeing up some more spot. I think we may see a $20 pullback on HR, but I see very little HR import for future months and a growing demand for OCTG and line pipe, much of which will be placed domestically this time around. So, I see no deterioration of HR through November. I think you will see futures bump again, as they did a few weeks ago. Logistics cost will change contract programs for next year, where mills were already partially equalizing freight. The trucking cost is so high now that mill programs involving any significant freight cost will look very different in 2019.”
  • “We are seeing the same pullback in lead times at both EAF producers and integrated mills. The main driver is current demand and projected strong demand through the end of 2018 and into 2019. The concerning factor is the disconnect that currently exists between U.S. domestic and global prices. The spread is more than large enough to encourage imports in large quantities if buyers are willing to take the risk or can pre-sell on a forward basis. The futures are reflecting an expected softening in Q4, which is traditionally a slow quarter and low point in pricing on an annual basis. I do not believe the drop will be as precipitous as some are projecting.”
  • “Holding the tariff situations constant, and assuming no rescinding of them or new trade agreements, then “fundamentals” should allow for a pretty stable price environment between now and year-end. We’d need a sizable increase in imports to push supply above demand levels and cause prices to fall. If/when global steel prices fall, then either imports here will increase or U.S. mills will react by lowering prices. It’s also possible that if raw materials correct significantly, that could impact prices, but I think that’s unlikely by year-end.”
  • “The big thing now is the disparity between import, Mexico/Canada, and domestic. Everyone needs to remember that the CRU index is domestic. Why would domestics drop that much between now and December? Doesn’t make sense.”
  • “I do not see a big drop in prices, maybe only a small adjustment. I know there are major scheduled maintenance outages in September and October. The OCTG and line pipe market cannot get enough steel. My guess is a tight and flat market at $900-ish through October, then maybe a small slide back to $850-ish.”

I Just Don’t Know…

  • “Honestly, I am at a total loss right now regarding the forces driving prices. Last month, I would have said we will see stable prices through the third quarter and into the fourth due to lack of competitively priced imports, long mill lead times and the Mexico/Canada situation. As of today, none of these factors have resolved themselves, yet sentiment is negative and there is some pressure on price. I do not understand it.”
  • “Lead times are all over. Ultimately, I do not believe the mills are that busy, and were it not for automotive, they would have been much slower. The warehouse business levels are “just okay” and everyone has plenty of inventory at good numbers. Foreign offers are few and far between. I don’t see the domestic mills moving on price, north or south, until there is pressure for business or the government makes a change. We are sitting back, with plenty of steel on hand or arriving, waiting for rulings.”
  • “I think there’s a hyper-sensitivity about falling prices in the market, and with good reason. It’s hard to look at the U.S. price levels vs. the rest of the world and not have anxiety about carrying these costs. The sad truth is, when you unleash the absolute and mighty power of the government upon a market like steel, and impose significant measures upon it, there’s little one can do to counter such moves. I honestly don’t think that many have yet accepted that things can (and likely will) continue on this path until we see a lifting/revision to the tariff situation. Who likes to admit that the government is basically in control of our steel market? Well, like it or not, they are for now, and all one has to do is look at the price spreads between the U.S. and the rest of the world for proof.”

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