Final Thoughts
Final Thoughts
Written by Tim Triplett
December 9, 2020
Steel supplies are so tight these days that $1,000 hot rolled is not out of the question. Which makes predictions of a coming “Steelmageddon” seem that much harder to believe. In fact, 60 percent of the service center and manufacturing executives who responded to Steel Market Update’s questionnaire this week do not view Steelmageddon as a threat to steel prices in 2021–but the other 40 percent remain concerned.
Steelmageddon, as most of you know, is a term coined by Bank of America Analyst Timna Tanners, who predicted that if all the new steelmaking capacity on the drawing board actually makes it to market in the next few years, that overproduction will far exceed demand, creating an oversupply that will drive steel prices down to disastrously unprofitable levels.
Based on comments from SMU’s poll, many steel executives believe the predicted oversupply will occur well in the future, if at all:
“Maybe 2022 or 2023, but not 2021. No way.”
“More capacity will come online, but not enough to cause this catastrophe.”
“Maybe by late third quarter we will see the beginning of it, but it’s more of a 2022 scenario.”
“I have a feeling that Cliffs will be very slow in returning any idled capacity in order to keep pricing elevated. This will shift the timing of Steelmageddon into 2022.”
“We need to know what the new administration will do with tariffs, but I cannot see an oversupply in the first half next year.”
“I never was a Steelmageddon advocate. There will be corrections, but I expect most EAFs to be profitable throughout the cycle.”
“I personally think the whole Steelmageddon idea is a farce at this point. The economy in 2021 should recover to a point where supply and demand even out, at least for a while.”
Other respondents aren’t as confident about the staying power of steel prices:
“Absolutely it’s coming, with the additional HRC capacity at Big River, Stelco, SDI Sinton, plus increased imports. It’s just a question of timing. No doubt, today’s insane pricing is not sustainable.”
“There is a ton of new capacity coming online. In addition, if Section 232 is reworked or eliminated, just imagine how supply may be affected.”
“The mills will scramble to restart idled blast furnaces (already begun) and new capacity will come online. Imports will be rising at the same time. Spot orders will stop as soon as lead times start dropping. This may be a repeat of the 2008 highs and 2009 lows.”
“Steelmageddon won’t be a problem until Q2, but be careful about having too much of this overpriced poison [inventory] on the floor past the end of April.”
“Unfortunately, the current situation isn’t good for anyone long-term. Such high prices will eventually cause our manufacturers to be unable to compete, and demand will be softening at the same time new capacity comes online.”
“It’s definitely still a threat, but there is an opportunity on two fronts to eliminate this—increase demand via infrastructure investment, and reduce supply by shuttering older, outdated mills, effectively swapping supply with new cleaner EAF steelmaking.”
“The mills are always behind the curve and move too far in one direction or the other. With history as our guide, a price collapse is an inevitable matter of time.”
One exec offered a positive thought everyone can appreciate: “I’m hoping with the vaccine being available, the economy will explode.”
Don’t forget to register for the Tampa Steel Conference which is slated for Feb. 2, 2021. As co-host of the virtual event, SMU and John Packard have put together a great lineup of speakers.
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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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.
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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.
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