John Packard is taking some time off…
We hope you are benefiting from our series of SMU Community Chats. The idea is to help us all feel connected by getting together once a week for a short visit with an industry expert—and in a way with each other. It’s a chance to learn something valuable about the steel market and at the same time see what others are thinking about today’s difficult business conditions. For those of us working from home, it’s also a chance to feel engaged and a bit less isolated.
We will host our Community Chats at 11 a.m. ET each Wednesday for the foreseeable future. The next session on April 29 will feature Ken Simonson, chief economist for the Associated General Contractors of America, who will report on how the coronavirus is impacting construction in the U.S. You can register for this webinar by clicking here.
If that time does not work for you, you can access a recording of each session at www.SteelMarketUpdate.com by clicking on the SMU Community Blog dropdown in the upper left. We intentionally keep these sessions short, less than 45 minutes, because we know folks are busy.
One drawback of our format is that we can only address a few of the many questions typed in by the 300+ participants who log in to each webinar. We understand it must be frustrating to ask a question that goes unanswered. But please keep the questions coming. They give us insights into what you are thinking and leads into subjects for future articles in Steel Market Update.
Last Wednesday, guest speaker Bernard Swiecki from the Center for Automotive Research (CAR) outlined the challenges vehicle manufacturers will face when they get the all clear to reopen their assembly plants. It’s not just a matter of turning on the lights and telling workers to report for duty. With virtually no sales since mid-March when the government ordered the shutdown of all nonessential businesses to stem the spread of the coronavirus, car companies are facing a major liquidity crisis. They may not have the capital they need to purchase parts and other materials (such as steel) and to handle the payroll until cash begins flowing again.
That being said, several people on the webinar asked for more specifics on the possible dates the auto plants may restart. Next to construction, automotive is the largest consumer of steel, and the health of the steel industry is dependent to a large degree on how quickly auto production can recover. Fiat Chrysler Automobiles (FCA), for example, has announced that it plans to begin reopening plants as soon as May 4. CAR has posted what it describes as “a living document” titled Restarting Automotive Manufacturing After the Coronavirus Pandemic, on its website, www.cargroup.org, which will track the progress week-by-week and plant-by-plant as automakers come back on line.
Swiecki is hopeful but skeptical that FCA and other companies will be able to get back to work in just a few weeks. The Kia plant in Georgia, for one, has the go-ahead from the state, which has renounced the stay-at-home rules ordered by most other governors. But Kia suppliers in other states still face restrictions. Many of the components that go into Kia vehicles come from Mexico and South Korea, which continue to struggle with COVID-19. “Other states and other countries must have their acts together. Trade needs to be there, by land and by sea. All the enablers need to be in place. Unfortunately, a good chunk of them are outside our country and outside our control,” Swiecki said.
Others listening in to the webinar asked for more detail on the status of the automotive market in Mexico, the USMCA trade agreement, the likely impact of historically low oil and gasoline prices on production of cars versus trucks, pent-up demand for new versus used vehicles, the lack of funding for R&D, and reshoring of the automotive supply chain, among others.
Please keep the questions coming. We’ll do our best to get to them eventually. Meanwhile, stay safe.
Tim Triplett, Executive Editor
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Latest in Final Thoughts
What are some “Black Swans” to watch out for? With the war in Ukraine entering its third year, your mind might understandably move to conflicts overseas. Here is one closer to home to consider: US trade relations with Mexico taking a turn for the worse. I mention that because the Office of the United States Trade Representative (USTR) dropped a (virtual) bombshell earlier this month.
Domestic prices have been sliding since the beginning of the year, and I don’t see any obvious reasons why the slide might stop this week. But let’s put the timing of a bottom aside for a minute. The question among some of you seems to be whether we’ll see another price spike, or at least a “dead-cat bounce,” before the typical summer doldrums kick in.
I’ve had discussions with some of you lately about where and when sheet prices might bottom. Some of you say that hot-rolled (HR) coil prices won’t fall below $800 per short ton (st). Others tell me that bigger buyers aren’t interested unless they can get something that starts with a six. Obviously a lot depends on whether we're talking 50 tons or 50,000 tons. I've even gotten some guff about how the drop in US prices is happening only because we’re talking about it happening.
We’ve all heard a lot about mill “discipline” following a wave of consolidation over the last few years. That discipline is often evident when prices are rising, less so when they are falling. I remember hearing earlier this year that mills weren’t going to let hot-rolled (HR) coil prices fall below $1,000 per short ton (st). Then not below $900/st. Now, some of you tell me that HR prices in the mid/high-$800s are the “1-800 price” – widely available to regular spot buyers. So what comes next, and will mills “hold the line” in the $800s?
Everyone knows the old saying that “a picture is worth a thousand words.” Just because it’s a cliché doesn’t mean that it’s wrong. A lot of inked has been spilled trying to figure out why prices are falling now. I thought it might be as simple as this: Market dynamics in the fourth quarter (UAW strike, companies buying ahead of an anticipated post-strike price spike, etc.) pulled forward restocking activity that typically happens in the first quarter.