Final Thoughts

May 20, 2019

I am in Atlanta speaking at a supplier conference for an OEM both today and again on Thursday. As expected, the questions were about Mexico and Canada and where prices go from here. There were also questions about our index versus the CRU index (different methodologies). I am looking forward to revising and doing it even better on Thursday. Of course, by then the whole market could be in a different place.

Over the weekend, and again during the first two days of this week, I have been in contact with buyers and sellers of flat rolled and plate. This includes trading companies since they will be very much involved in translating what offers are made into the U.S. market – especially from Turkey. The early consensus amongst traders and customers who have done business with Turkey in the past is they will not be price competitive with the 25 percent tariff still in place. Any orders Turkey takes will most likely come at the cost of other traders as opposed to the domestic steel mills.

One trader had some interesting comments that I will share with you regarding Mexico and Canada:

Since Mexico and Canada never stopped shipping, there are no real net tonnage additions to the market. In other words, supply hasn’t changed.
We do not yet know the details of how a “surge” is defined – by product, by a group of products, just overall tons, per quarter, per year, etc. etc. Until we know details, we really can’t get a good idea of the upcoming impact.
The melted and manufactured in North America requirement will have impact and that will likely change how a few suppliers go to market.
Based on all of the above, I doubt that any mill in Mexico or Canada fully knows yet how this will play out and how this will impact them. They need time to study it themselves.
Having said that, I do think we can expect some of the following:
- Given the brutal price competition the domestic mills have embarked on, I look for both Mexico and Canada to focus their attention on value-added products to fill their VRA. Better to compete with imports and use your 25 percent duty advantage than to beat your head against the wall fighting domestic mills.
- The Mexican mills will surely focus on the regional Gulf/Southwest markets, and I expect them to increase their market share there. Lower freight costs and…get a head start on solidifying their market share before SDI becomes operational down the road
- Not sure that either country has set up a monitoring system of shipments. Hence, we’ll probably see a short-term rush to get some shipments out before the other guys do.

John Packard Summit 18

Sentiment from those responding to our survey has been toward a continuation of steel prices falling. There are some signs of that maybe not being the case over the longer term (30-45 days out) depending on the amount of pain that is inflicted upon the service centers as they dump inventory into the spot markets. SMU continues to watch for capitulation at the service center level. This is something that is not there yet, but the foundation is in place.

Second, iron ore prices are rocketing and could move even higher in the coming weeks due to supply disruptions. If scrap were to reverse course and begin moving higher in concert…. Keep an eye on both.

Registrations continue to be strong for the 2019 SMU Steel Summit Conference, which will be held here in Atlanta on Aug. 26-28. We have around 550 executives already registered and the number continues to grow. To get more information about the conference or to register, go to www.SteelMarketUpdate.com/Events/Steel-Summit

If you have any issues with registration or have any questions, please send them to events@SteelMarketUpdate.com or contact Paige Mayhair at 724-720-1012.

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John Packard, President & CEO