Final Thoughts

Final Thoughts

Written by John Packard

John Packard is on vacation…

Mill executives have been quick to deflect criticism of their plans to spend billions on mill modernizations and upgrades, arguing that the market will be able to absorb the new capacity–but most steel buyers aren’t buying it. Three out of four respondents to Steel Market Update’s market trends questionnaire this week said they believe the 6-8 million tons of new flat rolled capacity announced by the mills will push prices down and perhaps even force some mills to close.

Analysts differ sharply over the impact of the new capacity over the next five years. Some expect it to oversupply the market and create a glut that could force hot rolled steel prices as low as $450 per ton. Others maintain the industry was long overdue for modernization and that the new facilities will displace outdated mills and a large share of foreign imports.

Comments from respondents show mixed sentiments on the subject. Many are concerned about what has been termed a potential “Steelmageddon”:

“There will be short-term pricing pressures.”

“There’s no way to absorb all the new capacity without some effect like lower prices or other supply (imports or domestic) being cut back.”

“Yes, prices will drop, but lots of factors are in play, some we know of and some we may not.”

“Prices will have additional pressure, but unless the equipment is removed, capacity will not be taken down or mills closed.”

“Yes, prices will drop, but the new capacity is long overdue.”

“Nothing is ever in perfect sync. The new capacity will replace some old capacity, but there will be periods of overlap and thus oversupply. I’m more curious about minimills’ future cost position given that availability of high-quality scrap inputs is declining and HBI is not that cost-effective.”

But some industry executives remain skeptical of the doom-and-gloom predictions:

“I would hope the mills have enough business sense not to create that type of [oversupply] situation.”

“Will there be a glut? Not if they take antiquated and obsolete capacity out of the equation.”

“It depends on government protectionist measures that will be put in place if Trump wins again.”

“Protectionism will be ramped up to compensate.”

“It all depends on demand. If the economy stays strong and the tariffs remain intact, I think there is room [for the new capacity].”

On another subject, it’s not too early to reserve your spot at the upcoming SMU Steel 101 in Ontario, Calif., Jan. 7-8. Most SMU workshops sell out well in advance of the event. The program will include a tour of the California Steel Industries mill. Click here for more information.

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

Tim Triplett, Executive Editor

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