Final Thoughts
Final Thoughts
Written by John Packard
February 19, 2020
It is rare that market direction is clear and uncontested. There have been a few times during my 42-year steel career when it was obvious prices were going to be higher tomorrow than they are today. It was during one of those times in history that I began writing a note to my steel buying customers. That note was the beginnings of the Steel Market Update newsletter.
At other points in time it was clear to me that the only direction steel prices could go was lower. One of those times was in June 2008 when I remember attending a steel conference in New York City and listening to one Dan DiMicco telling the audience that they were going to pay wherever Nucor set the price. As I sat in the audience, I knew prices could only move in one direction, and I had already seen signs of the great crash that followed. That conference was one of the catalysts that resulted in my taking SMU as a product to the greater steel community.
However, it is rare for that moment in time being so clear. It is the problem with no seeing the trees from the forest.
When Peter Wright was a Steel 101 instructor, he told a story about the mill he was representing back in 2004 when the market was going crazy. The CEO of the mill had a meeting and was crowing about how much higher their prices were than the rest of the world. Peter pointed out that was a problem. He was ignored. The market soon collapsed, and that mill was punished for not seeing what was right in front of them.
I don’t see us as being on the precipice of something as dramatic as either of the events in time mentioned above. Most of the time the market can be quite murky and hard to read. Different mills react to their customers differently. There used to be a time when we all knew the market was about to collapse because one of the integrated mills would come into the market and scoop up cheap hot rolled orders (thus filling their order books), and then the rest of the mills had to sort it all out after the fact.
The information we collect from our surveys (one just completed today, Premium members and data providers will have the results tomorrow), via email, phone and face-to-face interactions with steel buyers are important pieces of the puzzle we are putting together on a daily basis.
I want to take a moment and thank those of you who assist in this process. I hope we have done a good job of reporting what we are learning fairly – without bias.
I hope my article on the SMU Price Momentum Indicator was helpful to those who have questions about it. If I muddied the waters instead of cleared them for you, please reach out and contact me. You can reach me at 770-596-6268 or by email at John@SteelMarketUpdate.com
When we talk about steel price direction, one of the indicators we watch is ferrous scrap prices. We asked for guidance from multiple dealers today and found the sentiment for scrap was for prices to be sideways to up $20 per gross ton. At this point the terminology being used by some in the industry is “strong sideways.”
Here is just one comment that we received from one of the major scrap suppliers to the steel industry: “Rising export prices, strong domestic demand, and lack of incremental supply will raise U.S. domestic market $20/GT in March. Coastal scrap will remain on the coast and/or exported. Inbound flows to scrap yards have tailed off because of the Jan to Feb price drop. Mill order books remain stable with positive outlook for coming months. Stronger prices for iron subs and especially strong demand for primes will push these grades even higher.”
Why haven’t I raced to take our Price Momentum Indicator to Lower? Scrap is one reason. We need to understand where scrap is headed in the coming month. We should know even more this time next week.
Our next Steel 101 workshop is about 50 percent full. I am going to give you a new website address where you can learn more about our workshop, as well as NLMK Portage – the steel mill we will be touring as part of the workshop. Workshop dates are March 31-April 1, 2020, in Merrillville, Ind. Here is the CRU website with information and registration: https://events.crugroup.com/steel101/home
I’m also going to give you the CRU website to look at the 2020 SMU Steel Summit Conference info, as it has links to 30 videos from last year’s conference. The videos will give you a good sense of attendees, speakers, networking opportunities and the overall quality of the event. This year’s conference will begin at 10 a.m. on Monday, Aug. 24, and end at 3:30 p.m. on Aug. 26. The agenda is dynamic for a steel conference. It has something for everyone. Here is the CRU website regarding our conference: https://www.events.crugroup.com/smusteelsummit/home
We have a limited number of sponsor spots and exhibition spots for the 2020 SMU Steel Summit Conference. You can get more information from Jill Waldman at 303-570-6570 or by email: Jill@SteelMarketUpdate.com
Lastly, our newsletters (Executive and Premium) – you should consider upgrading to Premium. You should also consider upgrading to a membership where you have unlimited people in your company receiving our newsletters. Our prices are reasonable on all products, and membership comes with perks such as $100 per person discounts on SMU Events. For more information, please contact Paige Mayhair at 724-720-1012 or by email: Paige@SteelMarketUpdate.com
Finally, I want to wish Trevor Ryals the best of luck as he leaves Kenwal and joins Steel Dynamics as the sales manager at the soon to be built Sinton, Texas, flat rolled mill.
As always, your business is truly appreciated by all of us here at Steel Market Update.
John Packard, President & CEO
John Packard
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Final Thoughts
We just wrapped another Steel 101 Workshop, where you take what you learned in the classroom into the steel mill.
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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.
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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.