Final Thoughts
Final Thoughts
Written by John Packard
February 8, 2019
I continue to get mixed messages regarding the strength of the flat rolled steel market, and specifically lead times and pricing. I have heard from a number of steel buyers of longer lead times on galvanized at a couple of mills. The strength does not yet seem to be universal. Neither is the weakness. For those reasons, the SMU Price Momentum Indicator on flat rolled continues to be at Neutral. I am not yet sure what direction steel prices will move from here.
One of the concerns I have is the political situation. As Lewis Leibowitz has been pointing out in his articles, there just doesn’t seem to be any path as to what comes next. The March 2 deadline for Section 301 (tariffs on Chinese manufactured goods) is coming at us like a freight train.
Those executives participating in our flat rolled and plate steel market trends questionnaire this past week provided us mixed opinions. When asked if they believed the media coverage of President Trump is creating a negative opinion of an economy that is actually doing quite well – 63 percent agreed.
The next question was: Are you expecting a slowdown in the U.S. economy prior to the end of calendar year 2019? We found 62 percent of our respondents saying yes….
Canada and Mexico won’t sign the USMCA (NAFTA 2.0) until the steel and aluminum tariffs go away. President Trump needs a win….
What happens if the steel tariffs do go away, at least for Mexico and Canada? How quickly would they unwind? What impact would an unwinding have on steel prices?
I will be in Tampa during the first three days of this week. I hope to be able to get some more insights as I will be moderating a panel with Phil Bell and Jean Kemp of the Steel Manufacturers Association along with Paul Nathanson of Tariffs are Taxes and Richard Chriss of the American Institute for International Steel. The panel should be interesting. I spoke with Paul Nathanson last week as I have not heard him speak and I was not aware of his organization: www.TariffsareTaxes.org
Our own conference is coming together, and I am already excited with the strength of our program and speakers. We will discuss the new capacities announced by a number of steel mills, we will talk about distribution and coil coating, we will look at forecasts on a wide array of end uses for flat rolled and plate products, we will have price forecasts on steel and commodities that are used to make (or coat) steel. We will also discuss politics, trade and policy – after all, 2020 is a presidential election year. Registration is open online: www.SteelMarketUpdate.com/events/steel-summit
Since I will be traveling, you can reach Paige Mayhair at 724-720-1012 or by email at: Paige@SteelMarketUpdate.com. Brett will also be available at: Brett@SteelMarketUpdate.com. Paige can handle any account renewals, upgrades or new account information.
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?