Kloeckner’s Ganem “Quite Positive” on the Year Ahead

Ganem offered the following (lightly edited) assessment of market conditions in the U.S. during the call:

“From a steel market perspective, supply remains extremely tight with little to no spot availability until late second quarter or even third quarter, depending on the supplier. Supply chains are hand to mouth…and the situation is only going to become more challenging over the next eight weeks as mills struggle to keep up with the surging seasonal demand of the second quarter and a desperate need for restocking.

“There’s been a lot of talk about restocking driving demand…. Inventories are actually being reduced, not increased. So, no real restocking has occurred, and that’s really what’s driving this extreme tightness in the market.

“As a result, prices remain at historically high levels. Plate prices are lagging flat roll to some degree, but that gap is going to close as the second quarter goes on. And we’ve seen further increases in long products in response to an unexpected $50-70/GT increase in scrap prices in March. There is simply no sign of any price weakness in the second quarter at this point. We’re very, very optimistic.”

Ganem also shared his take on the various market sectors during the call:

“Manufacturing…is basically back to pre-pandemic levels. Many OEMs are actually ahead of last year in the first couple of months of 2021. The ISM Manufacturing Index just came out for February with a reading over 60 showing strong expansion. Factory orders are up 2.6%, a very strong increase year-over-year, and that’s nine straight months of increases. So, manufacturing looks to be very healthy, and forecasts coming from customers are only improving.

“Heavy equipment is also very strong. I think the forecasts are much more robust than anybody had expected. This has created tightness in the plate markets. And inventories within that sector appear to be very lean.

“Turning to energy, that’s probably the one weak link in the U.S. I think the overall situation is stable, but well below pre-pandemic levels. However, we’re actually seeing some modest improvements in rig counts. I would say, in the last few weeks, optimism is increasing with the rise in oil prices and now the expected strong demand recovery, fueled by the end of coronavirus lockdowns and the expected surge in consumer spending. It’s very likely we are going to see travel start to increase strongly in the coming months.

“Auto sales are slightly below pre-pandemic levels. The auto companies are certainly struggling in Q1 with supply chain issues. So, production is going to be somewhat moderated. But we would expect to see that only result in stronger production in the second half of the year as consumer demand will certainly improve, and there’s still a need to rebuild dealer inventories.

“In shipbuilding, we see very strong growth rates in both the barge and defense segments. On top of that, we’re hopeful that an infrastructure bill is going to be passed at some point in the first half of the year.

“So, I think the situation is quite optimistic, and the demand outlook for the rest of the year is quite positive,” he concluded.       

By Tim Triplett, Tim@SteelMarketUpdate.com