Final Thoughts
Final Thoughts
Written by John Packard
December 14, 2020
We are quickly moving to the end of 2020, and I am sure many of you cannot wait to put this year in the rearview mirror. I think we all want our lives back. I was texting with someone in the steel industry who had a different perspective, and maybe now is a good time to reflect on 2020 through a different lens.
“I will look back at 2020 fondly. A year of tremendous work, overcoming adversity, massive medical and technological innovation, reappreciation of family and friends, more emphasis on living cleanly. Complacency gets us in a bind. Humanity does better when it is reminded how bad things can become if we don’t work at it. I hope we all learned a lot.”
If you have some thoughts on 2020 you would like to share, feel free to send them my way: John@SteelMarketUpdate.com
The difficulty with pegging spot prices right now is there is actually so little available to be sold into the spot markets. I spoke with a number of steel mills as well as service centers and manufacturing companies today and the story was pretty familiar. If (and that is a big if) you were able to get a mill to quote spot pricing, the base level being offered seemed outlandish just a week or two back. Hot rolled coil being offered at $1,000 per ton ($50.00/cwt base). Coated products being offered as high as $1,120 per ton ($56.00/cwt).
One mill told me this afternoon, “It is a moving target. There are very, very few spot tons available at any mill. For the past few weeks, mills have been able to collect whatever spot price they offer. The $1,000 HR number is new. The number was more like $900 to $940 last week, but $1,000 is real, it is now being offered and likely the minimum someone will have to pay to secure any kind of spot volume at this time and moving forward. GI [galvanized] was at $1,100 give or take $50 last week. The $1,200 GI number is new and will also stick.”
Resistance to higher steel prices is building, said one manufacturer who purchases hot rolled and plate products. “It feels like steel prices are at a point where more people are starting to question if this is still a good buy when the steel arrives in January or February.”
We were asked today if we were aware of any jobs being stopped because prices are too high. We included a related question in our latest survey: “Have you lost sales because of your inability to acquire certain steel products?” The same manufacturer commented: “No, however, we have lost sales due to our high steel costs.”
Mills continue to be bullish that supply issues, high costs associated with scrap, and low inventories at service centers will continue through the first half of 2021. However, even the mills understand there is a new sheriff in town in the form of Lourenco Goncalves and no one is quite sure how Cleveland-Cliffs is going to respond to the current market situation. After all, as one mill executive put it to me today, “You can make a lot of money at $900 per ton hot rolled.”
There is a considerable amount of trading going on between service centers as steel buyers scramble to find material under what is being offered by the domestic mills. One service center salesman who handles hot rolled sales to other service centers pegged the resale number on hot rolled today at $50.00/cwt ($1,000 per ton). The company he represents is adjusting spot prices daily based on their inventory levels and costs.
One thing is sure, right now price momentum is clearly on the side of the steel mills and they are keeping the pressure on the spot market through allocation of tons and moving prices.
This too will pass. The question is when?
On Wednesday (Dec. 16) at 11 a.m. we will host one of our free SMU Community Chat Webinars with Spencer Johnson of StoneX and me. If you have a spare 30 minutes, I think this webinar will be worth your time. You can register by clicking here.
As always, your business is truly appreciated by all of us here at Steel Market Update.
John Packard, President & CEO
John Packard
Read more from John PackardLatest in Final Thoughts
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?