Final Thoughts

November 30, 2020

It is Tuesday, Dec, 1, 2020, and the U.S. has just returned from Thanksgiving. I hope everyone enjoyed their long weekend and did what was necessary to remain safe as we wait for the COVID-19 vaccines to be distributed around the world. There is a light at the end of this long journey we have been living through these past nine months.

I noticed on Monday that Moderna reported they would ask for emergency approval of their vaccine, which they said was 94.1 percent effective against the virus and 100 percent effective against severe forms of the virus. So, there truly may be a light at the end of this pandemic tunnel we’ve been stuck in.

Light at the end of the tunnel may not yet exist in the steel industry. Scrap will be up $30 to $50 per gross ton in December and is expected to go even higher come January. Last week, a steel buyer who had been in conversation with Nucor said the mill was raising prices because they believe scrap could be up by $100 per gross ton between now and January.

As we canvassed the industry over the past couple of days, it is clear momentum is on the side of the domestic steel mills. Many, if not all the mills, are restricting or controlling the order entry process on both spot (if it is available at all) and contract tons. A number of the mills (like SDI) have their order books closed and are not taking spot orders today (they should open their books yet this week).

Based on what steel buyers are hearing from their suppliers, the expectation is for the tightness to continue through the first quarter and well into the second quarter of 2021 or beyond.

We are hearing from some service centers that there may be some “panic buying” happening right now (buying out of fear as opposed to need). This is one of the reasons why domestic mills are controlling order entry to ensure their steady customers get their tons.

If we see demand increase once we move into the first quarter, inventories could get even tighter than they are now.

Steel buyers report paying as much as $840 per ton ($42.00/cwt) for spot hot rolled and $980-$1,040 ($49.00/cwt-$52.00/cwt) on coated products. One buyer told me there is nothing preventing the mills from “name your price” base pricing on spot right now.

NLMK USA has made a new offer to their union employees who have been on strike in Farrell in an effort to jump start talks, which were not scheduled to resume until some time in December. Hopefully, the union response is positive and the mill can soon get back to full production.

Big River Steel is ramping up production off their new EAF, which doubles their capacity, and U.S. Steel Gary Works is reported to be restarting a blast furnace. U.S. Steel has advised their #4 blast furnace at Gary Works will restart as of Dec. 8.

The question now is, how much longer will supply underperform demand? How much longer before inventories at service centers begin to build?

We will be asking and reporting on both of those questions in the coming days. Our next service center flat rolled and plate inventories and shipment analysis has begun and we will have a better sense of where the service centers stand in a few days.

We will conduct one of our free SMU Community Chat Webinars on Wednesday (Dec. 2 at 11 a.m. ET) with Josh Spoores of CRU and me. You can register by clicking here or going to www.SteelMarketUpdate.com/blog/smu-community-chat-webinars and clicking on the Dec. 2 link.

As always, your business is truly appreciated by all of us here at Steel Market Update.

John Packard, President & CEO