John Packard is traveling…
This was the plan when we got word there was a mysterious virus headed our way from China back in March: We shut down the economy for a month or two, keep our distance from each other, then get back to work and enjoy a quick, V-shaped recovery. Wasn’t quite that simple, as it turns out. With the coronavirus resurging in various parts of the country, the future is just as murky and unsettling today as it was when we first heard the term COVID-19.
That uncertainty continues to take a toll on steel demand and steel prices. Benchmark hot rolled steel prices have been trending mostly downward since the beginning of the year, even before the pandemic hit, plunging from $565 per ton in mid-March to a low of $460 in late April. HR rebounded a bit following the mill price increases in May to around $515 in early June before dropping again on the disappointing economic news to the current $475.
Ferrous scrap prices for July settled this week, dropping by another $20-40 per ton, putting additional downward pressure on finished steel prices. Scrap supplies have increased at a greater rate than steel production, explain the experts, who say it could be months before supply and demand for scrap reach a better balance. With steel consumption still so unpredictable due to the virus, SMU has kept its Price Momentum Indicator pointing toward lower steel prices in the weeks ahead.
Steel buyers are bearish on prices, as well. Two-thirds of the service center and OEM executives responding to SMU’s market trends questionnaire this week said they expect prices to stall at current levels over the next 30 days. About 26 percent expect prices to continue to deteriorate. Only about 8 percent expect prices to rise in the next month. “Improving demand has not yet caught up with supply,” commented one exec. “We’re in a delicate balance right now,” added another. “Any major shift in demand or supply will change that balance. Scrap falling this week won’t help.” Said a third respondent: “At just 55 percent capacity, the mills need to generate cash flow. How? The way they always do, by buying business!”
Ultimately, steel prices are a function of steel demand. About 40 percent of respondents to this week’s questionnaire said they see demand for their products improving, which is positive news. But an equal number see demand remaining the same, while another 20 percent said demand is still declining. Buyers’ comments were mixed:
“Our demand is up, but from a lower level than last year.”
“Our June was at 70 percent and we expect July to be 80 to 90 percent of normal.”
“Demand right now is erratic and hard to predict. Prices are low and margins are tight. Hardly anyone is buying out longer term. It’s kind of scary.”
“For the last two months my company has hit all-time record sales. Not really sure what is behind this, but glad to see it.”
“I think it’s going to be a long summer—with masks on of course.”
In other news, we have added two more high-profile speakers to the lineup of the 2020 SMU Virtual Steel Summit Conference — Mark Millett, President & CEO of SDI, and Maximo Vedoya, CEO of Ternium. You can join the hundreds of companies who will be attending (and networking) if you click here. You can also find more information on our website www.SteelMarketUpdate.com by clicking on the SMU Virtual Steel Summit link.
Bringing some clarity to the complex subject of steel futures will be Andre Marshall, president and founder of Crunch Risk, LLC, who will be the featured speaker during SMU’s next Community Chat webinar on Wednesday, July 15. This webinar begins at 11 a.m. ET and is free to anyone in the industry. Click here to register.
As always, your business is truly appreciated by all of us here at Steel Market Update.
Tim Triplett, Executive Editor
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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.
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.