Final Thoughts
Final Thoughts
Written by John Packard
May 4, 2020
I am back from my “stay-cation.”
Is it just me or is time standing still?
I don’t know about your neighborhood, but the landscaping in mine has improved over the past 45 days. I understand there are a lot of home projects ongoing.
From a steel executive email to me earlier today, “I told a guy yesterday – business is somewhere between winning the lotto and being dead, much closer to being dead.”
There are some winners out there – those working on the wall at our southern border… (what else?).
I spoke with Alan Beaulieu of ITR Economics yesterday. He believes that we will see a “V” shaped recovery – however, not a sharply rising “V” but one that takes until late 2021 before we return to pre-COVID-19 levels. Dr. Beaulieu will be participating in the 2020 SMU Steel Summit Conference on Aug. 24-26.
I noticed Goldman Sachs raised its estimate for WTI crude oil prices for 2021 to $51.38 per barrel as they expect a gradual recovery in global oil demand as well as production cuts from OPEC and shuttering of capacity elsewhere. Today oil was hovering around $24 per barrel.
I also spoke with Ryan Avery who will be one of our keynote speakers during our youth-focused program. He made an interesting comment to me that I ascribe to as well. “Good companies are optimistic in trying times, THE Company is creative….”
Our next SMU Community Chat webinar will feature Timna Tanners, the metals and mining analyst with the Bank of America. I will be chatting with Timna about the disruption of supply, who are the winners and losers, what surprises is she seeing from her vantage point, what are the similarities and differences between what is happening now and the Great Recession of 2009/2010, what is the status of all the mill projects and is Steelmageddon moot or more relevant than ever? Our Community Chat Webinars are held every Wednesday at 11:00 a.m. ET and you can register for this week’s webinar by click here.
Next week (May 13) SMU will welcome Dr. Chris Kuehl of Armada Corporate Intelligence as our guest speaker.
We will publish our Service Center Inventories “Flash” Report to our data providers on Thursday of this week. Our Premium members will get their copy of the full report around the 15th of this month. This report will be quite valuable in determining how badly steel distributor inventories are being impacted by the rapid change in demand. It will also give us a good look at order patterns and potential adjustments. If you would like to become a confidential data provider, please contact Estelle.Tran@crugroup.com or myself: John@SteelMarketUpdate.com If you would like to learn more about becoming a Premium member, please contact Paige Mayhair at Paige@SteelMarketUpdate.com
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
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.
Final Thoughts
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.
Final Thoughts
We're about to hit 50% Section 232 steel tariffs. What could happen?