Final Thoughts

Final Thoughts

Written by John Packard

So, we have our service center inventories at 2.5 months of supply, down slightly from the 2.6 months we got from our distributor data suppliers the previous month. This is not from our survey; we decided to put that data aside as it was suspect – it had both buyers and sellers contributing to the numbers (and what the heck do salesmen know about inventory?). The data we are collecting now comes from heads of purchasing or top executives of the service center. We have a nice mix of distributors and a few surprises that we don’t want to talk about publically (after all there is competition out there). Our end of November number is 2.5 months of supply. So, what the heck does that mean?

The answer to that question comes from our flat rolled and plate steel market trends analysis – which is a long way to say it comes from our twice monthly survey. We reported some of the results from this week’s market trends analysis – lead times and negotiations. These are two items we have been watching closely for years, and something you won’t get in any other newsletter or market intelligence report. Mill lead times are short, meaning you can get steel in a very expedited fashion from the time you place the order until it delivers. Hot rolled lead times now average about four weeks, according to our data. Average is an important concept to understand. This doesn’t mean the lead times from all mills are four weeks; some may be three, some may be six, but our average is just under four. If you have 2.5 months of supply of hot rolled and you have “X” days of supply on order already – do you need to buy more steel right now? Coated steels are a little less forgiving, but at 6-7 week average lead times, there is no pressure to buy steel right now. The net result then being that the steel mills need to negotiate prices in order to entice service centers to buy more steel.

Now, we are close to the end of the year. Our last publication will be this Sunday night, Dec. 23. Our readers are thinking of the holidays and time away from the office. But, deep in the back of their minds, those responsible for buying steel are trying to figure out what the industry is going to look like when they return to work on Wednesday, Jan. 2, 2019.

I was talking to the owner of a flat rolled steel service center earlier today. He was telling me some of the things he was looking at as he attempts to predict his company’s business for 2019. “It’s not a question of demand. A couple of our customers are looking to beef it up a little bit [bring more contract tonnage in as business is good and the steel is needed].” He went on, “Next year’s forecast looks encouraging, however there is a lot of concern about the stock market.”

“This oil thing is crazy. I don’t know what this might do to the energy sector. If it goes to $45 [per barrel], it might be a problem for the energy sector,” he said.

We spoke about lead times. In this case, we didn’t talk about averages, but about the real lead times his company was being quoted by his suppliers. “SDI Columbus is in mid-February on coated. Nucor is also doing a little better. SDI and NLMK had good booking weeks. ArcelorMittal doesn’t have much steel to sell.”

He pivoted and asked me if I thought the steel mills were starting to put pressure on the Trump administration to implement quotas. After all of the optimistic comments we had just discussed, why was he interested/concerned about the conversations between the steel mills and the government?

He pointed out steel prices have been falling, despite what looks like good economic news. He was not optimistic that prices would rebound anytime soon. He did not think we would get the automatic bounce that tends to happen as lead times slip into the new calendar year. “What might turn this market around [make steel prices go higher]?” is what he asked me. Then answering his own question, he said, “Quotas.” He surmised that the steel mills will be pushing the Trump administration to set quotas to replace tariffs. But, no one knows if or when that might happen. “My feeling is the mills will continue to cut crazy deals,” is how the conversation ended.

This is a typical conversation, one of the dozens I tend to have each and every day. There rarely is a day off as the information keeps on coming from service centers, manufacturing companies, traders, steel mills, fabricators, wholesalers, toll processors and members of the financial community. They all get tossed into the hopper as I try to make sense of this market.

This is the second to last issue of Steel Market Update that will be published this calendar year. As I reflect on the thousands of steel people I have spoken to this year, as I think about those that SMU has trained and as I remember our SMU Steel Summit Conference, I wonder if I, and SMU, have done enough to help our customers survive and thrive. That has always been my goal.

As we enter 2019, there will be some changes coming to SMU and our readers. CRU wants for our product to be read by as many people in the industry as possible. We are going to try to make this happen. That is a teaser for you to ponder over the Christmas and New Year’s holidays.

I know many of you will be bolting for the Christmas holiday a little early and you may not get to read our Sunday evening newsletter, at least not until after the holidays are over. So, I want to take a moment to personally thank each and every one of you who are reading these words, those of you who have supported SMU and me personally over the past 10 years and those of you who are just learning about our company. Your business, your kind words, your recommendations and suggestions have allowed this company to prosper and grow. You have given myself and my team the courage and vision to look for the “correct” answers and not just to report news or rumors. Your business is truly appreciated. It is important for me to let you know that each and every one of you are appreciated.

I also want to take a moment to thank, again, the executive team and all of the teammates at CRU. Yes, working for someone else is hard – but at my age it is a joy to learn and be challenged, and that is what they are doing. It is also a joy to know that my ideas and my team are appreciated. SMU will exist for many years to come, and I believe it will exist to ask and answer the questions that are in the back of your mind as you try to buy and sell steel.

SMU and our programs are going to get world recognition in 2019. I have discussed a new conference idea with the team at CRU, something that is not being done either here in North America or in Europe. That is another little tidbit for you to think about over the holidays – what in the world do the steel and manufacturing industries need that doesn’t already exist…?

OK. It is time to sign off.

As always, your business is truly appreciated by all of us here at Steel Market Update.

John Packard, President & CEO

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