Final Thoughts
Final Thoughts
Written by John Packard
September 23, 2020
There is a lot of catching up that I have had to do over the past few days. In the process I have spoken to steel buyers and sellers, mills, service centers, and traders.
Steel buyers should anticipate another flat rolled price increase between now and early October. Scrap is rumored to be going up again in October and the mills will use the increase (or projected increase) along with the tightening of supply to move prices higher.
Steel buyers continue to be cautious as one Midwest service center executive put it to me, “While we see continued near-term momentum, there is the risk of course that the market corrects, as these maintenance outages are completed. There is more capacity coming online next year too. It is also possible buyers look to imports now – for 2Q needs; and if so, these buyers will need less domestic steel in coming months. Obviously, another wave of COVID is a major risk as well.”
Regarding COVID and a possible second wave: I spoke to our London offices yesterday who advised England has imposed a second lockdown and all workers who are able to work from home have been ordered to do so, restrictions on gatherings, restrictions at pubs, a halt to spectators at sporting events, a $250 fine for not wearing a mask in public (even first time offenders), those failing to “self-isolate” face fines of $12,500. The changes do not go back to full lockdown status as was seen in March (schools/universities remain open) but the new rules are expected to remain in place for the next six months. England had more than 41,000 new COVID cases earlier this week and are projected to reach 50,000 new cases per day by October.
From Big River Steel spokesperson, I learned the galvanized line will resume production this weekend. The company told me, “Big River Steel is currently finishing the refractory dry out and will then recharge the pot with zinc in a day or two. Galvanized shipments are expected to resume over the weekend.” The lack of production off the GI line at BRS has been one of the major problems within the market. We heard from one service center, “The Big River Steel Galvanized line being out has rocked my world. Galvanized is near impossible to get until December and at a high price. The other mills jumped at the chance to push prices up. I was surprised to see in the newsletter [SMU] this morning that your average price is below $40. I can’t get anyone to quote below $40. I’ve been told there will be no year-end deals this year – so I’m looking at more contract business. However, with prices where they are now, I’m not sure about locking in. What to do?”
SMU is taking our Steel 101: Introduction to Steel Making & Market Fundamentals Workshop virtual. We are working with the dates of October 20-21 for the first virtual Steel 101 event. You will be seeing more information on this workshop and registration links in the coming days. If you have questions please send them to: Jill@SteelMarketUpdate.com
It’s good to be back, and to know that the steel market still needs old guys like me to help make sense to what sometimes can seem like total chaos.
If you are new to SMU and are not yet a subscriber, please consider joining. I spoke with a service center buyer yesterday who told me that the information in SMU is more important today than it has ever been. You can learn more about becoming a member (as we like to call our subscribers) by contacting Paige Mayhair at Paige@SteelMarketUpdate.com
My name is John Packard and I like to hear from our readers, and from those associated with the steel industry. You can reach me at John@SteelMarketUpdate.com
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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?