Final Thoughts
Final Thoughts
Written by Tim Triplett
October 16, 2020
Steel Market Update’s service center inventories data for September shows supplies on hand at very low levels. At the same time, the percentage of inventory on order is at very high levels. That suggests, say some observers, that some service centers may have waited too long to replenish their inventories, then did some panic buying to catch up, pulling demand forward. The result may be lower demand than expected from the distribution sector for the rest of the year. On top of seasonal weakness and lower scrap prices, that could add to the challenge the mills face in collecting higher prices.
Mills reportedly are pushing for $700 per ton hot rolled, but only 27 percent of buyers polled recently by SMU believe prices will get that high before correcting. About 38 percent believe steel prices are already peaking around the $650 level. As one skeptic commented to SMU: “Pricing at over $650 in this market cannot be sustained. The air is too thin at that elevation.”
Homebuilding has been surprisingly resilient during the pandemic, but the more steel-intensive commercial side of the construction market has been a disappointment. In a recent blog, the experts at ITR Economics point to one sign of life for nonresidential construction, the U.S. Architecture Inquiries Index. Published by the American Institute of Architects, the index rose to 51.6 in August, above the neutral level of 50 indicating an increase in inquiries to architects across the country. This is the first monthly score above 50 since the metric cratered in March, noted ITR, and it’s encouraging because inquiries would naturally precede an increase in actual architectural services. None of AIA’s other indexes have topped the 50 threshold yet, however, and ITR still projects fewer new nonresidential construction projects in 2021.
It’s still not too late to register for our virtual Steel 101: Introduction to Steel Making & Market Fundamentals Workshop this Tuesday and Wednesday, Oct. 20-21. For more information click here. If you miss this one, the next Steel 101 workshop will be conducted in less than two months, on Dec. 8-9.
Registration is also open for the CRU Ryan’s Notes Ferroalloys 2020 Virtual Conference scheduled for Oct. 26-29. This is the ferroalloys trading event of the year, to run on the same virtual platform as the SMU Steel Summit. The agenda includes an impressive lineup of speakers, whose presentations will be available to registrants on-demand for three weeks after the live dates. The virtual conference will include “speed networking” sessions at several points in the agenda to enable introductions among attendees. Click here for more information.
Steel Market Update will be working with the Port of Tampa on the Port of Tampa Steel Conference which is slated for Feb. 2, 2021. More details on the virtual event will be available soon.
As always, your business is truly appreciated by all of us here at Steel Market Update.
Tim Triplett, Executive Editor
Tim Triplett
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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?