Final Thoughts
Final Thoughts
Written by Tim Triplett
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
Tim Triplett
Read more from Tim TriplettLatest in Final Thoughts
Final Thoughts
Another day, another massive gap between the news and market sentiment. On the news side, we’ve got war in the Middle East. The devastation facing western North Carolina coming into tragic focus. And the outcome of the presidential election remains a coin toss, according to current polling.
Final thoughts
There are markets where the headlines and the prices are both crazy. This does not appear to be one of them, at least not yet.
Final thoughts
Washington loomed large in our surveys this week. Two things actually: the upcoming presidential election and the trade case against imported coated products from 10 nations.
Final thoughts
Thanks to everyone who attended our Steel Hedging 101 workshop in Chicago on Wednesday. I learned a lot from StoneX Group’s Spencer Johnson, who instructs the course, and from your good questions. One thing that Spencer said sticks with me as I write this column. Namely, that momentum drives steel prices more than other commodity markets. If you watch steel futures, you’ll see up days and down days. But it’s rare to see the momentum shifting back and forth within any given day.
Final thoughts
SMU's prices ranges for flat-rolled steel were mostly sideways on Tuesday even as futures market shot higher. I got some questions as to why hot-rolled (HR) coil futures shot higher. As best as I can tell, it might have been in response to news that China plans to roll out stimulus measures. We have details on those measures here thanks to our colleagues at CRU. The chart below gives you some idea of just how sharply upward the move in HR futures was earlier on Tuesday: