Final Thoughts

Final Thoughts

Written by John Packard


So, tonight I thought I would write about a couple of text messages that I received over the past 24 hours. Both messages have to do with steel prices, just looking at information out of SMU and other publications or indices differently.

The first message was from the president of a Midwest-based service center. They were (are) disturbed with the wide variety of hot rolled price averages being referenced in the market. I was told in the first message, “What a pricing mess… You [SMU] are at $26.75/cwt [$535 per ton], Platts is $26.25/cwt [$525 per ton], AMM is at $27.00/cwt [$540 per ton] and your big brother [CRU] posts $25.00 [$500]. How can one call a market with such absurdity[?]”

John Packard Summit 18I don’t see absurdity in the numbers. I see different methodologies and probably different data sources in play. It is important to remember the CRU number is based on actual transactions. I repeat as it is important that you understand, the CRU index is the only index based solely on transactions. The other indices, including SMU, rely upon bids and asks that exist in the market, as well as a smattering of transactions. For SMU, the negotiations surrounding the market and market pricing are more important than just transactions. I expect there to be discrepancies.

As I look at the market (and I don’t study the prices being referenced by the other indexes as I don’t want to be influenced by anyone), I would expect there will be an adjustment in the upcoming CRU numbers in the next couple of weeks. Transactions take time to get reported. I know the mills worked hard to fill their fourth-quarter order books, and those special deals may have been what CRU has captured late last week and early this week.

We are going into a holiday week next week and I expect SMU numbers to be relatively flat with limited action.

Another text message I got yesterday was from the head of commercial for a steel mill. This individual said, “You went bullish on the prices yesterday! Nice. I think there is something to the rumors of AM thinking of idling yet another harbor furnace, and USS doing same in Granite or Great Lakes. That would certainly help keep a balance in supply/demand to offset the weakness in the energy sector.”

I mentioned the rumor of another furnace possibly going down. I don’t think I mentioned any specific mill in my comments. I am short term bullish on prices. However, I am not making any predictions as to what will happen over the next 12 weeks. I don’t have a good enough feel for the market right now to know if we are in the throws of another dead cat bounce. Or, for that matter, if we are at the beginning of a credible alteration in supply, which could fundamentally impact what is available in the spot markets in Q1 and Q2.

I am concerned about a slowdown in demand. I am getting mixed messages from various industries. In the HARDI steel conference call on Tuesday, every wholesaler who spoke on the call said their business was “good.” That is good news. I am concerned about the energy sector, automotive, yellow goods (tractors, earth movers, etc.) and many products impacted by Section 232 and Section 301 tariffs. The political climate is contentious and will be getting worse in the coming weeks. China deal/no deal? North Korea flipping its nose at the U.S. president…

“How can one call a market with such absurdity?”

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

John Packard, President & CEO

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