Final Thoughts
Final Thoughts
Written by John Packard
January 24, 2020
On Thursday I provided some of the feedback I was getting from those involved in both the sales and purchasing of flat rolled steel into the North American markets. The comments continued to flow in and here are a couple more that I found interesting:
The general manager of a service center provided these insights to me late on Thursday: “I think one needs to realize that the mills have in fact gotten prices on sheet up to a level we haven’t seen since Aug/Sept last year. They’ve recouped all of the last down-cycle drop, and then some. Current mill prices are now ‘good’ by any recent measures. So, it’s hard to see where further upside comes from. With scrap looking like it will be sideways to down, it’s causing a pause in sentiment. I think, too, that the pace of domestic output has caught the market by surprise to the high side. The same could be said for the Dec/Jan imports, when considering slabs into the mix. There’s a sense that buyers are very comfortable with where their inventories are and there’s no sense of urgency. I hope that we see a period of relative stability in the weeks ahead given the current dynamics.”
This same GM went on to talk about whether he was seeing any “holes” in mill order books: “I don’t see holes and I certainly hope that we don’t receive lower offers so that we can absorb this latest barrage of increases, convert our metal, and raise our prices in kind. If prices begin to fall any time soon, it will be extremely painful and disruptive for the mills’ customer base.”
A southern-based distributor provided this information: “I have never been so confused about the direction of the market. The mills are pushing to get spot transactions to $600 consistently, but I don’t see that happening, especially if scrap remains flat or down. Cold roll and hot roll are still available with five-week lead times or less. Not a good sign for a strong market. I am not hearing any enthusiasm from the end users regarding any real growth in demand over last year.”
The following came from a large service center buyer: “There are more than a few of us out there trying to read where we are and where we are headed. If you look at futures, it appears the party may be over soon. If you talk to some upper level mill people, you would think this market has legs into the summer at $600 plus. We are watching lead times closely. Never have I seen such disjointed regional and product lead time differences.”
He continued: “Additionally, no service center or OEM I have spoken to are in any immediate need of more inventory. Most seems to be in good shape. No one I have spoken to has paid more than $600 for HR as of today. It is becoming more apparent that scrap will be down $10 or more for February.
“Since we have been dealing with largely a psychological approach to this latest cycle, I think the scrap factor may stall this rally. As buyers note that drop in input cost, and the fact that demand is largely flat, I think we begin the next game of chicken between the mills and buyers. Who can wait the longest to make their move?”
This buyer also discussed the amount of steel being produced: “The other factor that is in play is the recent weekly production figures. Mills are making A LOT of steel. Where is it going? Are there massive buys out there over $600 ton? None of this adds up in a sensible manner. Hence, we start questioning the metrics and our guts to try and reconcile which direction we are headed. Based on my conversation over the past week, I would say 70 percent believe we are near a peak and will see a decline in 30-60 days, and the balance believe we can go to $640+ for several more months.”
President Trump’s move to hit “derivative” products made out of steel and aluminum is going to make things even more interesting as we head into the election (and our conference at the end of August). Yes, we will have a segment of our agenda dealing with trade issues. I am holding off on specific speakers as I struggle to identify exactly which issues will be the most pressing. Maybe you have some comments on the subject? Do you think the biggest trade issue will be Section 232 (steel), Section 301 (China), Section 232 (auto), USMCA, trade cases (AIIS or other)?
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John Packard, President & CEO
John Packard
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