Final Thoughts
Final Thoughts
Written by John Packard
May 18, 2020
With the expectation of higher scrap prices coming for the month of June, on top of the steep rise in ferrous scrap this month, the mills’ margins may well be squeezed, which will impact negotiations and pricing over the next few weeks. Most steel buyers anticipate a new round of price increases by late May into the beginning of June.
At the same time, automotive production is restarting and the price of oil is closing in on $30 per barrel. Automotive may well be back to full production by late June, while oil needs to exceed $40 per barrel before we see it having an impact on oil rigs and production in the U.S. Dr. Chris Kuehl was pretty optimistic last week when he called for oil to get back to $100 per barrel in the not too distant future (due to Americans doing USA-based vacations in their cars and getting back to going out to eat, stores, etc.).
It probably will not be too long before we hear of a blast furnace coming back online at USS, AMUSA or AK Steel (Cleveland-Cliffs) to accommodate automotive. The fear on behalf of steel buyers is the possibility of too much, too fast. We will need to watch the balance between supply and demand.
We are hosting what I think will be a very interesting SMU Community Chat tomorrow (Wednesday, May 20) at 11 AM ET with John Anton of IHS Markit and myself. The webinar is free to anyone who would like to register and join us. The chat will take 40 minutes or less out of your day. To register click here.
On a much different topic, I received a note Monday from a steel buyer who contracted COVID-19 and was just returning to work after being absent for the past six weeks. He asked that I not share his name, but he (and I) feel what he went through is important for everyone to think about as you go to the grocery store, restaurant or sporting event.
COVID-19 A Personal Perspective
“John, I don’t know exactly how I caught this virus, but I spent the last six weeks fighting for tomorrow. I had no energy or appetite and at times I didn’t recognize my wife or daughter. Hell, I wasn’t scared because I just didn’t understand.
“I have a strong wife and daughter who just pushed me through this ordeal. I am 40 pounds lighter, but not a good diet plan. I’ll take being pudgy.
“This Covid-19 is real, and we need to prepare for a different tomorrow. Wear your mask for your protection as much as for the others around you.”
I think I will end here…
As always, your business (and your lives) are truly appreciated by all of us 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?