You Can’t See the Forest for the Trees
Mill lead times have surged over the past couple of weeks, which I believe is a result of Snowmageddon in Texas and other areas of the Southeast. When you look at our lead time graphics, you need to remember we are gathering data from our flat rolled and plate steel market trends survey. The lead time data is generated from buyers who are associated with steel service centers and manufacturing companies. We do not collect data from individual mills. When reviewing our data, understand that specific mills have different ways of filling their orders books. A good example is Steel Dynamics’ Butler plant, which opened and closed their April order book this week, while other mills have a more traditional way of booking orders and they could be taking hot rolled for May and June depending on how full their order book is with existing commitments (contracts) and how far behind they are with late orders.
One steel buyer with a manufacturing company pointed this out in an email to SMU this morning: “Everyone’s lead times are way off, in my opinion. Nucor still owes customers some January contract tons, so do BRS and SDI…. That is first-hand information; they all owe me tons and are way late. How can we say lead times are 9 weeks for HR when they are behind 4+ weeks already?”
Our lead time data is best used to determine the direction lead times are heading, the strength of the order books at the domestic steel mills and the impact long lead times have on price negotiations (which we also track using the same data sources as lead times).
Lead times are just one of the “trees” in the forest.
What is driving this market (and pricing) are inventories, or I should say the lack of inventories, coupled with strong demand and stumbling steel mills. The cycle will break when buyers have options and can afford to wait. That is not happening right now.
“Backlogs are incredible,” is how the conversation began with the owner of a Midwest-based service center. “Everybody needs steel. Inventory is like gold. You can’t complain [about high prices] because we can sell it. I don’t see any cracks…although I believe there are more imports coming than people think. I am adjusting volumes [lowering future steel purchases] that we are buying forward.”
I asked this executive when he thought market prices would begin to correct and was told “probably late April or May.” Although, at the same time, he said they could not see that far out and it could last through the summer. I guess there are just too many trees in the way.
I am an optimist. You have to be an optimist to be in the steel industry for as long as I have. You also need to be malleable in your thinking, as you have to deal with stresses caused by unusual and unforeseen circumstances. To last and prosper, you need to be aware of change, embrace it and adapt (or lead) through it.
I believe the steel industry and manufacturing in this country are going to go through a rebirth as the U.S. begins to embrace climate change and the need to control emissions like carbon. Carbon is the element that gives steel strength. We will begin to think differently about carbon, how to make steel (and all of the other inputs that emit carbon and affect the environment), how energy affects the environment and much more. The U.S. steel mills are well positioned on the “carbon curve” globally. We will focus on the carbon curve and the changing world we live in when we host CRU Analyst Ryan Smith, who specializes in global mill costs and competitiveness on March 17 at 3:30 p.m. ET (Ryan is based in Australia and there is a 15-hour time difference). You can register for this free SMU Community Chat Webinar by clicking here.
I want everyone to know that I am anxious to get back to “live” events. I have heard from many that you too are hankering to be able to speak to people face to face and to meet new people within the industry. Networking has always been a key component of the SMU Steel Summit Conference.
I also want you to know the SMU and CRU Events teams working not only on the Steel Summit project, but all our workshops and the Tampa Steel Conference, are doing so with the understanding that we will host safe events in light of the pandemic. We are also working with the Georgia International Conference Center and the local hotels, the state of Georgia and GICC guidelines on what will be considered safe by the end of August. We will continue to update those registered for the event, as well as those considering registering, on the policies and procedures that will be in place at the venue. As I mentioned earlier, I highly recommend getting vaccinated as soon as you are eligible to do so.
I want to express our condolences to our colleague Paige Mayhair whose father passed away earlier this week. I want to thank Brett Linton on the SMU staff and Aaron Pollock who is the head of sales for CRU in Pittsburgh for filling the void. If you have questions about your subscription to SMU, wish to upgrade, make changes, add people, etc., please send your inquiry to Info@SteelMarketUpdate.com and we will get back with you as soon as possible.
As always, your business is truly appreciated by all of us here at Steel Market Update.
John Packard, President & CEO, John@SteelMarketUpdate.com
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What are some “Black Swans” to watch out for? With the war in Ukraine entering its third year, your mind might understandably move to conflicts overseas. Here is one closer to home to consider: US trade relations with Mexico taking a turn for the worse. I mention that because the Office of the United States Trade Representative (USTR) dropped a (virtual) bombshell earlier this month.
Domestic prices have been sliding since the beginning of the year, and I don’t see any obvious reasons why the slide might stop this week. But let’s put the timing of a bottom aside for a minute. The question among some of you seems to be whether we’ll see another price spike, or at least a “dead-cat bounce,” before the typical summer doldrums kick in.
I’ve had discussions with some of you lately about where and when sheet prices might bottom. Some of you say that hot-rolled (HR) coil prices won’t fall below $800 per short ton (st). Others tell me that bigger buyers aren’t interested unless they can get something that starts with a six. Obviously a lot depends on whether we're talking 50 tons or 50,000 tons. I've even gotten some guff about how the drop in US prices is happening only because we’re talking about it happening.
We’ve all heard a lot about mill “discipline” following a wave of consolidation over the last few years. That discipline is often evident when prices are rising, less so when they are falling. I remember hearing earlier this year that mills weren’t going to let hot-rolled (HR) coil prices fall below $1,000 per short ton (st). Then not below $900/st. Now, some of you tell me that HR prices in the mid/high-$800s are the “1-800 price” – widely available to regular spot buyers. So what comes next, and will mills “hold the line” in the $800s?
Everyone knows the old saying that “a picture is worth a thousand words.” Just because it’s a cliché doesn’t mean that it’s wrong. A lot of inked has been spilled trying to figure out why prices are falling now. I thought it might be as simple as this: Market dynamics in the fourth quarter (UAW strike, companies buying ahead of an anticipated post-strike price spike, etc.) pulled forward restocking activity that typically happens in the first quarter.