Final Thoughts

Final Thoughts

Written by John Packard


In Sunday night’s issue of Steel Market Update, I discussed the increase in the days of inventory on order at the service centers. The increase can be attributed to extended lead times, late deliveries and perhaps some double ordering from the distributors’ end-user customers. We saw an increase in the percentage of inventory that is being held for contracts as spot ton availability at the mills continues to be limited or not available at all.

So, we need to watch for changes in lead times. But perhaps the most critical item to watch right now is whether the domestic steel mills are beginning to deliver late orders. It is the rush of late orders that will most likely be the first sign of having reached the “tipping” point. The tipping point being when prices stall and begin to spiral lower.

John Packard Summit 18I reached out to steel buyers today to get input on how they are seeing deliveries from their suppliers, and what, if anything, they are doing to protect themselves.

“We have one mill that seems to be getting things steadied a bit, but most others are in many ways getting worse,” said one service center executive. “Seeing our orders moved between different locations of the same company and lead-times still moving out. We have already been forced to send in our June tons (please remember it is March 16), which means we are ‘guessing’ more than ever as to what to buy, which will lead to some unbalanced inventory positions as customers pull more of one thing versus the other and we cannot make the short-term changes as needed.”

This buyer (who is located in the Midwest) told me he is seeing foreign offers, but the extended lead time and limited tons are not enough to “turn the tide on the market balance.”

A manufacturing company steel buyer was not shy in his disdain for the steel mills when he told me, “All mill suppliers suck, all of them. They are not improving and do not intend to. They are happy with this chaos as it is continuing to line their pockets with gold, so why would they want anything to change?”

He then discussed the company’s drive to buy foreign steel to ensure they have supply. “We are buying all the foreign we can get our hands on to fill up the supply chain. The market will correct when the supply chain is filled back up…and it will take supply from somewhere to do that. If not domestic, then it will come from foreign, but there is no mistaking that it will come.”

A buyer for another manufacturer told me, “Every mill is 3-5 weeks behind; no improvement as I still have January production orders just shipping…. I am hand to mouth at my plants, and giving mills priorities to keep lines and plants running at this point.” 

This buyer also spoke about foreign purchases: “I’m buying all the tons I can get my hands on.  We need supply, and SDI Sinton is the nearest relief, but they won’t be running at full capacity for HRC until October more than likely.” He went on to say he expects it will be September production (July/August order placement) before prices hit their peak.

“We are starting to see some minor improvements in on-time delivery, but it’s still really poor,” said one southern service center exec. “At this point, I’m a little worried that they will all catch up at one time – that could have a huge impact on inventory levels at the service centers and could also impact demand for those that are using service centers to fill in holes at end users. The supply chain is more effective when everyone isn’t chasing orders, but there’s going to be a big impact when the mills get caught up.”

bubbleThis southern distributor went on to say, “The definition of a foreign offer that makes sense has changed dramatically. We are considering foreign offers for July that I wouldn’t have ever imagined.  A ‘known’ July at this point is almost better than an unknown–regardless of how high it is. We haven’t pulled the trigger, but we’re considering it.” Like the manufacturing company above, this executive felt it would be July before the mills begin to catch up on late orders and a price correction begins. “The market probably begins to correct in July.  The mills are going to get caught up, some customers are going to start pushing back, and service centers are going to get happier with the lower inventory levels and quit buying just to have it. At some point we have to just get out of the game, and it’s getting close to that time.”

We heard a similar comment from one of the HARDI wholesalers during our steel conference call this morning. He told the group he was holding back on buying inventory because he did not want his company to “suffer” like they did back in 2008 when prices collapsed.

For now, the SMU Price Momentum Indicator continues to point toward higher steel prices over the next 30 days. However, we continue to caution our readers to pay close attention to the flow of orders from the domestic mills into your facility, lead times for new orders, whether more tons are being offered on your contracts, and any changes in your allocation. On top of that will be foreign steel offers and any changes in trade restrictions that might lead to a flood of imports coming to the United States.

A reminder, we are going to have an interesting SMU Community Chat Webinar tomorrow (Wednesday) afternoon at 3:30 p.m. ET (2:30 PM CT). Our speaker is located in Sydney, Australia, and is an expert on global steel mill costing, the carbon cost curve and the move to decarbonize the industry. You may have begun to read articles in the mainstream press about carbon border taxes and other means of addressing harmful environmental emissions. There is a lot to this subject, and Ryan Smith of CRU is a good person to listen to as you and your company start to learn more about what the future holds for the manufacturing and steel industries here in America as well as around the world. You can register for this free webinar by clicking here.

I continue to be bullish on our ability to host an in-person SMU Steel Summit Conference on Aug. 23-25 in Atlanta. I am beginning to hear of people under 60 years old who are now getting vaccinated, and many states are saying they will be open to 18+ by May 1 or before. When your group is called, I hope everyone gets vaccinated. I have had both of my shots (Moderna) and other than being a bit “achy” the day after getting my second shot, I had no ill effects.

I continue to work diligently on the conference program. We will have a number of the best speakers you have come to enjoy such as Alan Beaulieu of ITR Economics, Timna Tanners of Bank of America, Phil Bell of the Steel Manufacturers Association, trade attorney Lewis Leibowitz, Josh Spoores of CRU along with a number of the mill CEOs: Mark Millett of SDI, Lourenco Goncalves of Cleveland-Cliffs and Leon Topalian of Nucor. Add to those a special presentation from Michael Smerconish of CNN and we have the base of an exceptional program.

Like any SMU Steel Summit Conference program there will be surprises, the best networking ever, good food, great venue and hotels, and all the good friends you have missed seeing for the past year (or longer).

You can learn more about the speakers, costs to attend and how to 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@SteelMarketUpdate.com

Latest in Final Thoughts

Final thoughts

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