Final Thoughts

Final Thoughts

Written by Tim Triplett


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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Final thoughts

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?