Final Thoughts
Final Thoughts
Written by Tim Triplett
January 29, 2021
Steel Market Update’s check of the market this week puts the benchmark price for hot rolled at $1,180 per net ton. The spot market continues to set new highs for the HR price, which in the second week of January topped the old record of $1,070 per ton reported by SMU in 2008. It has set new records five times since then and continues to fuel speculation on how much higher it can go.
SMU continues to poll the market on the subject, and the current consensus among steel buyers is that the market is likely to peak around $1,200 per ton—that would be just $20 more—and that the peak will likely come in February or March. There’s no way to know that for sure, of course, and just because the price quits rising does not necessarily mean it’s doomed for a big fall.
Here’s what some of the service center and manufacturing execs responding to SMU’s questionnaire had to say:
“For the next 45 days HRC mills can charge whatever they want.”
“I’m not sure it can go much higher, but I thought the same at $1,000 and $1,100.”
“It depends on availability in the second quarter. We just do not expect the market to really open up; as furnaces come back online, others will go down. Buyers hate pricing at $1,200, so believe we are close to a peak, but we’re not expecting to fall off a cliff.”
“We believe HRC is peaking now. Demand for HRC is not nearly as robust as cold rolled and coated. Not weak, but no longer in a frenzy.”
“I believe the mills will try to get one more increase unless the chip shortage in the auto industry prevents it. But $1,200 is too high. There will be a correction, the question is when and how much.”
“Domestic mills are still pushing the limits with their ‘take it or leave it’ attitude. Total greed at this point.”
“I see it happening in late April or early May, there are too many other factors not being considered right now that could give this market staying power.”
“Other than flashy headlines, hitting a peak doesn’t mean it will immediately drop.”
“I wish articles would stop talking about all these stupid cracks in pricing that just aren’t there. It messes up the market.”
February Scrap Prices
Finished steel prices are influenced by the ups and down in scrap prices. SMU reported on Sunday that prime scrap prices were likely to settle sideways in February, while obsolete grades were looking to trade lower by $50-60/GT, following two months of significant increases. Trading was still ongoing at that point. One of SMU’s scrap sources offers the following update: “It’s apparent today that some mills did not buy as much as they would have liked to last week and have returned “quietly” to the market this week to try to secure more scrap, at higher prices than they would have paid last week. There have been some weather disruptions across the country that are contributing to the slowdown in scrap flows. Also, export is at or near a low, certainly out of the U.S. So, we have hit a bottom and will likely see some higher prices come early March, though maybe not as high as in early January when export pricing was $90 higher than it is today,” he said.
Special Events
SMU has several conferences and workshops in the works, and it’s easy to get more information. Our first Steel Hedging 201: Advanced Strategies & Execution will be held on Feb. 23-24. Our next Steel Hedging 101: Introduction to Managing Price Risk Workshop will be held on March 30-31. Our live and in-person SMU Steel Summit Conference will be held Aug. 23-25 at the Georgia International Convention Center in Atlanta. You can learn more by clicking the event.
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?