Final Thoughts

Final Thoughts

Written by John Packard

Over the past two days Tim Triplett and I have been participating in the FMA Annual Meeting in San Antonio, Texas.

The mood of the steel buyers I met with was moderately negative when it came to the ability of the steel mills to collect the price increases announced. One very large service center buyer told me there has been no effort by the domestic mills to raise prices on the flat rolled products spot bought by his company. Other service centers in attendance were also skeptical of the increase.

John Packard Summit 18

The CEO of a service center during the discussion part of one panel told the group that a large OEM in the Chicago area was looking for inventory as they were not able to get their parts from their Chinese suppliers. Evidently, the manufacturer has equipment to make the parts domestically. This, however, was not the norm as other service centers in the group did not see that happening with their clients.

The coronavirus was a major point of discussion in many of the one-on-one discussions in the hallways and common areas. No one knows what to expect. I would characterize most of those with whom I spoke as feeling the coronavirus was being overblown by the media.

John Anton of IHS Markit provided a totally different opinion on behalf of his company. I wrote an article about the negative things he had to say about what is happening in China and the rest of the world, and that these things would soon be a problem in the United States.

After Anton spoke, I stopped and talk briefly with the CEO of a large service center group. He told me he was emailing all of his managers asking that they put together procedures to protect their company against the virus.

Yesterday I received an email from my trading friend who lives in China. I asked him to give me an update on what is happening in China and how it is impacting business. Here is some of what he had to say:

“Firstly, thanks for the kind words of concern, and we are fine, well and in good spirits. The reason being that since my return to Taiwan for the CNY [Chinese New Year] in early January, I have not been able to return back to China without severe travel ban repercussions. New regulations in several Asian countries, including Taiwan, restrict travelers from returning or visiting if they have been in China and departing for other destinations. If I went back to China now and wanted to fly back to Taiwan or travel to Japan, Korea, etc., it would be very challenging. For Taiwan, I would be under house quarantine for 10-14 days. For other countries, regulations vary, so I am comfortable where I am for the time being.

“As for China, my guys in Beijing are slowly returning back to work, 2-3 days a week currently, and most companies are practicing the same precautions. Here’s the take, John, and maybe few people know the new unannounced policies by the government. If any employee or worker is diagnosed with coronavirus, the government can automatically close the company or project indefinitely, implying lack of precautions taken to avoid transmission of the disease.

“You have heard of city exit restrictions or even military intervention in Chinese cities, basically martial law, that prevents even occupants from leaving their homes? The military brings food and rations to every home on a daily basis, the reason being that if any new cases are diagnosed in those rural areas, suburbs, communities, then the leaders of those said areas are fired/axed due to poor leadership. Hence those leaders are unilaterally enforcing these measures. There is still real panic in China.

“As for business, two words: Very Quiet…

“China has announced new infrastructure projects to stimulate the economy, but no one is asking ‘how’ when current mid-stream projects are still closed/shut down.

“Steel mills have cut back capacity because no one is picking up the January orders and there’s dwindling storage space for new material. Heard that domestic buyers of Baosteel only picked up about 20 percent of their January rollings, and other mills in Northern China are in the same boat. Why? Domestic transport costs increased by RMB600/mt asserting lack of drivers and increased scrutiny at check points, mill and port entrances etc., and basic fear of contracting the virus. This is also the reason for severe reductions in order pick-ups. The same applies for cargo removal from the port, such as ores.”

On my way to the San Antonio airport this morning I received a call from one of the executives at CRU in London. CRU had to cancel two conferences this week, one in Paris and one in South America. Europeans are looking at taking action to protect their companies and their employees from the virus.

Those of us in the U.S. should anticipate problems in Europe in the coming weeks as the virus forces company closures, travel bans, etc.

OK, so tonight’s issue isn’t the most optimistic ever produced. You do need to be aware of what is going on in the rest of the world, which is reeling from the coronavirus.

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

John Packard, President & CEO

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