Final Thoughts

November 1, 2019

John Packard is traveling…

Eddie Lehner, Ryerson president and CEO, is optimistic that carbon steel prices will bottom in the fourth quarter. “Given where prices are now, the recent price increases have a better chance of sticking than the ones that were announced in Q2 and Q3,” he commented during the company’s third-quarter conference call this week.

Reporting to analysts and investors, Lehner said: “The quarter was characterized by protracted and deepening industrial metals deflation, particularly across the carbon steel spectrum, as well as recessed manufacturing demand…. Although the road of getting average costs in inventory below replacement cost has been a long and winding one, after five quarters of steep carbon price deflation we believe the industry is transitioning to improved pricing fundamentals as well as better adjusting inventory levels to current and anticipated demand.”

Lehner pointed to the “two head fakes” earlier in the year when price announcements in April/May and July/August yielded only small, temporary increases. He believes the latest round of increases will have more staying power, but urges patience. “Even if the price increases stick, the material you buy now won’t arrive for one to three months. So, that puts us into the first quarter of 2020,” he said. “Hopefully, by the middle of Q1, we will see prices going up and average inventory cost coming down with new demand surfacing at that time. Once we get to about mid-February, I think the probabilities are more weighted toward recoveries in price and demand.”

That view is supported by history. The current CRU price at $444 per ton looks bad, but the 10-year average for the CRU is $623, and it has been above $475 for 88 percent of that time, he noted. “So, if you look at the probabilities, it looks like conditions are present for prices to start moving higher,” he said, supported by stronger raw materials prices.

When it comes to forecasting steel prices, nothing is certain. “We are going to have to see how the mills enforce that price increase. Early indications are positive but, really, it is up to the mills and up to their customers.”

It’s time to start making plans to attend SMU’s next Steel 101 workshop set for Ontario, Calif., on Jan. 7-8. The event will include a tour of the California Steel Industries mill. For more information and to register, visit www.SteelMarketUpdate.com/Events/Steel101

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

Tim Triplett, Executive Editor