Final Thoughts

May 15, 2019

I have moved from our Steel 101 workshop in Iowa to Minnesota where I met with a large flat rolled service center this afternoon.

The service centers are consistently reporting to SMU that the domestic steel mills are just plain producing too much steel. With scrap down and the marginal cost to produce a hot band at the minimills somewhere around $500 per ton, there just is no incentive for the mills to stop making steel.

The expectation is for Mexico and Canada to have the Section 232 tariffs removed. However, there will be protection mechanisms in place that protect the normal and natural movement of material between the three countries. Steel buyers may think that prices will drop, and they may, but more due to sentiment being affected than a flood of imports coming from either country.

I communicated with a Mexican mill today and asked about the mill increasing shipments to the U.S. and was told, “No chance. There will be a surge protection mechanism that has a tie-in to historical volumes. As you know, Mexico exports a small percentage of its production…just like the U.S. exports a small percentage of theirs. Whatever the agreement is, the countries have made it clear that there is a certain natural volume that crosses the border in both directions, and there is no place for Peter Pan like projects to artificially increase shipments between the countries.”

I have had discussions with service centers this week about the direction of flat rolled and plate steel prices. With scrap moving lower (and summer coming when scrap prices traditionally move lower due to higher collections) and nothing on the horizon to spark demand, or limit supply, then prices are expected to continue to move lower. Will the hot rolled average break though the $600 per ton barrier? Well, the only way I can answer that is to say there are already a number of data points below $600 and the expectation is for that number to only grow over the next few weeks.

The companies with whom I have been speaking are all coming to the 2019 SMU Steel Summit Conference in Atlanta, which they all agree is the premier networking event for the steel industry. You can learn more about the conference by going to: www.SteelMarketUpdate.com/Events/Steel-Summit

For those interested in nominating someone for the 2019 SMU NexGen Leadership Award, which is being sponsored by the Steel Manufacturers Association, you can click on this link.

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