Final Thoughts
Final Thoughts
Written by John Packard
November 27, 2019
Did everybody buckle up on your way to work on Monday morning? Boy, what a week it has been, and it’s only Tuesday!
For those of you who are not aware of the events of the past few days, I will do a quick recap.
Over the Thanksgiving Holiday, U.S. Steel had a large water pipe break at their largest facility – Gary Works. This created a situation where the mill had to take down their furnaces and cease production of hot metal. We have learned through our sources that the #14 blast furnace came back online yesterday (Monday); there appear to be plans to bring back two of the three remaining furnaces. One is expected to be up by this weekend, and the other shortly behind it. (USS confirmed in a press release that their largest furnace [#14] is back online and two more are in the process of being brought back). It is not known exactly how many tons of melt were affected, but the mill is saying no customer would be “adversely impacted by the disruption in production.”
Early on Monday morning, President Trump tweeted his intention of “reinstating” 25 percent tariffs on steel from Brazil and Argentina. The reasoning was for so-called currency manipulation (both currencies float on the open markets) that was hurting American farmers. As you may know, Brazil and Argentina have both negotiated steel trade agreements with the Trump administration, which provides quotas for the countries. If (and it is still an “IF” at this moment) the Trump administration follows through with tariffs, the companies most negatively affected will be steel mills in the United States and their customers.
Early this morning, Cleveland-Cliffs announced they are acquiring AK Steel. Cleveland-Cliffs is a mining company supplying iron ore pellets to the integrated steel mills. The company has also been working on supplying other forms of iron units to the electric arc furnace mills. In their announcement they mentioned the possibility of bringing the Ashland blast furnace back up to supply pig iron to the EAF producers.
What do I think about all of this? Well, it’s a great time to be in the steel industry. There is never a dull moment. Each of these events will need to be studied and allow more time to see exactly what they mean. In the case of Brazil and Argentina, we have to wait to see if the proclamation actually comes out (otherwise it’s just a tweet). We will be in touch with USS and their customers to better understand what is happening there, and we will be in contact with Cleveland-Cliffs and AK Steel, but I expect no change over the short term.
One suggestion I have – if anything I discussed above doesn’t make sense to you, then you need to take one of our Steel 101: Introduction to Steel Making & Market Fundamentals Workshops. Our next one will be held in Ontario, Calif., on Jan. 7-8, 2020, and there are seats still available. Go to www.SteelMarketUpdate.com/Events/Steel101 for more details.
As always, your business is truly appreciated by all of us here at Steel Market Update.
John Packard, President & CEO
John Packard
Read more from John PackardLatest in Final Thoughts
Final Thoughts
Steel equities and steel futures fell hard after news broke earlier this week that the US and Mexico might reach an agreement that would result in the 50% Section 232 tariff coming off Mexican steel. The sharp declines didn’t make much sense, especially if, as some reports indicate, Mexico might agree to a fixed quota. They didn't make sense even if steel flows between the US and Mexico remain unchanged.
Final Thoughts
Even before the news about Mexico, I didn’t want to overstate the magnitude of the change in momentum. As far as we could tell, there hadn’t been a frenzy of new ordering following President Trump’s announcement of 50% Section 232 tariffs. But higher tariffs had unquestionably raised prices for imports, which typically provide the floor for domestic pricing. We’d heard, for example, that prices below $800 per short ton for hot-rolled (HR) coil were gone from the domestic market – even for larger buyers.
Final Thoughts
I want to draw your attention to SMU’s monthly scrap market survey. It’s a premium feature that complements our long-running steel market survey. We’ve been running our scrap survey since late January. And over just that short time, it’s become a valuable way not only for us to assess where scrap prices might go but also to quantify some of the “fuzzy” indicators - like sentiment and flows - that help to put the price in context.
Final Thoughts
I think there is an obvious case for sheet and plate prices going higher from here. That’s because, on a very basic level, the floor for flat-rolled steel prices, which is typically provided by imports, is now significantly higher than it was a week ago.
Final Thoughts
We're about to hit 50% Section 232 steel tariffs. What could happen?