Final Thoughts
Final Thoughts
Written by John Packard
November 19, 2018
I thought some of the comments made to me earlier today by one of the steel mills were quite interesting. “We continue to see good activity, but regional trade is king (and competitive) and long lead time foreign is being shunned. Instead of fighting off Vietnam in coated, we see a battle within NAFTA. Imports still coming in but U.S. mills producing more and exporting less. Keeps the action nearby, which suits customers just fine since they do not want to carry inventories and there is a certain expectation (yet again) that duties on Canada and Mexico could come off in Q1….All leads people to stay close to home.”
The question I am being asked is what happens to spot steel prices should the Section 232 tariffs on Canada and Mexico come off, and will they be replaced by some sort of quota? One of the wild cards floating out there as we consider what 2019 will look like. I am keeping our Price Momentum Indicator at Lower as there appear to be more reasons for prices to continue to slip than to reverse course. Not everyone sees it that way, as one Upper Midwest service center told us earlier today, “Prices ‘could’ go up if demand at the mill level rises as anticipated for first quarter.”
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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?