Final Thoughts

Final Thoughts

Written by John Packard


I have just returned from three days in New Orleans where I attended the HARDI annual conference. I spoke to the steel council on Sunday, and I referenced some of my comments in Sunday evening’s issue of Steel Market Update.

I stayed until this morning because I wanted to hear Alan Beaulieu speak to see if there have been any changes to his views on the economy, voiced at the end of August at the SMU Steel Summit Conference. Essentially, there have not been any significant changes as he is still forecasting a slowdown in the economy over the first two quarters of 2020, but not enough to signal a recession.

The recession will come in 2022. More about that in a moment.

John Packard Summit 18Based on what we are viewing on TV each and every minute of each and every day, I think it is important to quote Dr. Beaulieu, “Growth is not impacted by whoever is in the White House. Go ahead and vote in 2020. Your vote is important, but just know it doesn’t matter….” He provided evidence in the form of a slide showing the growth of the economy over many decades, and it didn’t matter who was in the White House. The same can be said of the stock market, he told the HARDI members. It does not matter who or what party is in the White House.

He warned the HARDI wholesalers they need to be aggressively getting ready for the next recession. The 2022 recession will be one “where you feel it.” In the current environment, he said, businesses should be spending money on themselves (items that makes the company more productive) and to get rid of the deficiencies in the organization.

However, in 2022 and early 2023 there will be deals to be had on property and other investments.

In late 2023 until the end of the decade, Dr. Beaulieu feels there will be a boom. Millennials will be buying houses, and the stock market should do very well. It will be much like the Roaring Twenties – with the same result for those not prepared – The Great Depression in the early 2030s.

He looked at the Great Depression as a time of opportunity for those who are prepared. You will have an opportunity to learn more from Dr. Beaulieu when he speaks at our 2020 SMU Steel Summit Conference on Tuesday, Aug. 25.

A note about what I was hearing from the owners and top executives of the many wholesalers and manufacturing companies with whom I spoke over the past few days. The sense was one of optimism. Their demand levels were reported to be “good” and most (not all) were not feeling any slowdown from their customers.

The executives were also modestly optimistic (they tend to be a pessimistic group) about steel prices moving higher over the next month or two.

As SMU canvassed the flat rolled markets over the past two days, we heard similar sentiment from those responsible for purchasing steel. Here are a few of those comments:

“With scrap moving higher and HR lead times starting to fill up for January, we expect pricing will move higher. There will be at least one more increase before year’s end. We are expecting just a small increase in business for Q1. We will enter the year very cautiously with lean inventory.  Living in a steel world where a tweet changes the market day to day has forced our company to run lean and put off expansion.” Manufacturing company

“We anticipate another mill increase in December along with continued rising prices, with index prices at least January and February. We expect Q1 2020 demand to be similar to Q1 2019.” Service center 

““We had some recent dialog with a variety of mills, and they loaded up on year-end deals and indexed agreements and therefore are holding pretty firm on spot for now. All that is doing is driving short-term indexes higher based on the way it’s reported and contract pricing higher short-term. I’m very cautious. Demand remains tepid.” Service center

“We expect pricing to hit a ceiling in 1Q 2020 and top-out in maybe February or early-March.  We think 2020 will look like 2019, in terms of demand. Pretty flat expectations.” Service center

The plate mills have raised prices and some plate buyers are telling SMU that a small portion is sticking with quotes in the $700-$720 per ton range. Not every plate buyer is bullish on pricing as evidenced by this comment we received from one executive:

“Service centers are seeing their market share for plate shrinking as the plate mills are taking more business direct and imported plate has been replaced by imported plate fabrication. Even with three increases out there, plate prices have not really moved, and plenty of folks are selling USA plate delivered at less than it costs to replace it into their plants.” Plate service center

Over the past few days, SMU has booked a number of spots in our Jan. 7-8, 2020, Steel 101: Introduction to Steel Making & Market Fundamentals Workshop. The workshop will be held in Ontario, Calif., and our group will tour the California Steel Industries steel mill as part of our workshop. We still have seats available as the workshop is about two-thirds sold out. You can find more details on our website: www.SteelMarketUpdate.com/Events/Steel101

I am now back in my office through the balance of the year.

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

John Packard, President & CEO

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Final thoughts

What's the tea in the steel industry this week? Here's the latest SMU gossip column! Just kidding... kind of. Yes, some of the comments we receive in our weekly flat-rolled market steel buyers' survey are honestly too much to put into print. Some make us laugh. Some make us cringe. Some are cryptic. Most are serious. We appreciate them all. Below are some highlights from our survey results this week. Some of the comments that we can share with you are also included, in italics, in the buyers' own words, with minimal editing on our part.