John Packard is taking some time off.
May could be a pivotal month for the U.S. economy and the steel industry. No reasonable person believes we will have the virus crisis behind us, but we should at least have more clarity on what lies ahead.
States, to one degree or another, are loosening their restrictions and allowing nonessential businesses to reopen. Automakers have announced plans to restart most of North America’s assembly plants by the end of May, reports the Center for Automotive Research, which has a webpage dedicated to tracking automotive restarts after the coronavirus. Other types of manufacturing are sure to follow suit, while taking steps to protect their workers from exposure to COVID-19.
One steel mill exec tells Steel Market Update that customer inquiries are already up and lead times are beginning to extend. “Some customers are hedging their bets, apparently concerned that the bottom was last week or this week. With scrap being tight and lead times extending, I can see why some customers are in a space where they believe they should place orders.
“None of us has a playbook for the COVID-induced economic stop, consequently the roadmap is not clear,” he continued. “But what is clear to me is that there is a strong sense among large-ton consumers that it’s OK to speculate more today than it was over the previous 45 days. Nobody likely wants to be the first to draw a line in the sand, or to reopen a furnace. It’s definitely not the time to think about the latter. But the former could happen by default as reduced-capacity availability starts getting filled.
“I am not advocating a price increase, just a likelihood that mills may stop chasing an ever-lower number and be more satisfied with what they are getting, realizing the market may be close to balance relative to capacity and the situation with scrap,” he added.
Scrap prices may be close to a bottom, say some experts. Scrap executives tell SMU that ferrous scrap supplies are so tight due to the coronavirus shutdowns that prices will almost certainly move sideways, if not increase, when the market settles for May. That should provide support for finished steel prices next month. So far, prices for flat rolled steel products have continued to erode, with SMU putting the current average price for hot rolled at $460 per ton.
“We’re starting to see some stampers pull steel again and customers that were hit by the virus coming back to work. Nothing drastic, but 0-10 percent is at least better,” said one respondent to SMU’s market trends questionnaire this week.
“May is the pivotal month,” declared another. “We all need to open up in segments over the month of May, no exceptions. May sets the tone for the balance of year! Automotive, construction, manufacturing, infrastructure, etc., they all need to restart and show positive progress in May, and then build from there. By the end of September, everyone needs to be running on ALL cylinders. Fourth quarter will need to be the savior quarter for 2020 heading into 2021.”
Don’t forget to log in to our next SMU Community Chat at 11 a.m. ET tomorrow (Wednesday, April 29) for an in-depth discussion of the prospects for the construction industry. Guest speaker will be Ken Simonson, chief economist for the Associated General Contractors of America. Register for this webinar by clicking here.
Tim Triplett, Executive Editor
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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.
What a difference a month makes. There are a few full bulls left in the room, but their numbers are dwindling. We’ll release results of our full steel market survey tomorrow afternoon. I took a sneak peak at the data on Thursday. And more people than I expected think that US hot-rolled (HR) coil prices will be in the $700s per short ton (st) two months from now. Vanishingly few think prices will be above $1,000/st in mid-April.
Sheet prices have fallen again this week on shorter lead times, higher imports, and potentially higher inventories. (We’ll see for sure when we release our service center shipment and inventory data next week.) I remember reporting almost exactly the same thing about a month ago and getting a fair amount of pushback. Not so much these days.
What’s something going on in the market that no one is talking about? That’s a question on our survey, and was also posed to many who graced the stage at our Tampa Steel Conference. Perhaps another way to phrase that is “not talking about publicly” or connecting the dots of steel market chatter to find a uniting central issue. I thought one respondent to our survey really summed up the current moment: “Right now it is all politics.”