Final Thoughts

Final Thoughts

Written by John Packard


NOTICE: NO SMU PUBLICATION ON SUNDAY, APRIL 4 DUE TO EASTER HOLIDAY

Imports are coming.

We are watching galvanized carefully as automotive production is being reduced due to the chip shortage, and we are seeing higher volumes of galvanized imports coming in.

March 2021 license data is showing 240,000 net tons of galvanized, which is up 55,000-65,000 tons above the levels seen over the prior three months. Galvalume imports were triple in March over February and double what we were seeing late last year.

John Packard Summit 18Bloomberg Commodity News posted an interesting article blasting domestic steel prices and the domestic steel industry. I am putting a link to the article here, but I am not in agreement with some of the observations made by Bloomberg. The domestic industry has been adding new capacity and new “blue-collar” jobs. SDI, Nucor, North Star BlueScope, and ArcelorMittal/Nippon Steel Calvert all are adding capacity (plus USS Big River Steel just completed an expansion).

We know steel prices are cyclical, but the article does have a point that if U.S. steel prices remain hundreds of dollars per ton above the world markets, the infrastructure bill may end up attracting more foreign steel. More foreign steel will help deflate over-priced domestic steel.

In the flat rolled and plate steel market analysis we just completed, we asked the trading company respondents if the latest prices available on foreign were attracting buyers, and 100 percent of the respondents reported increased activity on future orders of hot rolled, cold rolled and coated products. Only 25 percent of the traders reported foreign plate prices as being attractive.

High Price Plateau vs. Steep Decline

The following is an email conversation between me and an executive with a large service center. The “I” in the conversation is referencing the executive, and not me:

“I read this snippet from your comments in Tuesday’s edition and it made me think more about what may occur:

SMU Note: In my 44 years in the industry, I cannot remember prices plateauing for more than a week or two. Steel prices tend to be either heading higher or heading lower. For me, the question is not if prices will peak and move lower, it is when and how much? Having said that, I had a conversation with the steel buyer at a large service center this afternoon who believes prices will plateau this time and remain at the levels we are at now through the third quarter. When I asked what the difference was between now and the last four decades, he said, “We have a new sheriff in town and his name is Lourenco Goncalves.

“We’re dealing with three events that have converged to create a truly unprecedented market: 1) the S232 tariffs combined with additional new trade restrictions on steel; 2) the COVID pandemic crash and recovery; 3) and U.S. mill consolidation down to four majors. The last two have occurred within the last eight months or so, and the first event is having its “2nd” impact following implementation in 2018 and is acting like a “blocker” regarding import momentum.

“Because of these unique circumstances, I think it is indeed possible that the peak and correction for this cycle may behave differently than in the past. I also think we may see a more pronounced difference in the North and South once this market changes. Given the dynamics that exist today, it’s possible that availability opens up sooner in the South since its more EAF-based vs. the North and has a higher percentage of spot vs. the North overall. There’s also the possibility that availability of Mexican HR imports into the South will grow beginning in the fall. Much of the new capacity coming on line in Mexico has a home there, but many feel that it still results in excess HR that is likely to end up in the U.S. This will be combined with a higher level of imports from the rest of the world, again more heavily in the South. Then we add the new SDI Sinton mill into the mix, which will be ramping up in the fall as well.

“Conversely, in the North, they are much more exposed to auto/appliance and it looks like we’re many months away from them becoming current, especially as the auto industry struggles to get their inventories up to desired levels. It would be unusual to see two different markets exist for very long before we’d see equilibrium take hold. But, this is where the Lourenco [Goncalves, CEO of Cleveland-Cliffs] factor may come into play as your reader suggested [in Tuesday’s Final Thoughts article]. If /when the market achieves supply/demand balance or outright oversupply, I don’t think it will be business as usual with the integrated mills getting heavily in the fight. I do think that Lourenco, now controlling more flatrolled capacity than the others, will pull back output vs. chasing ever lower prices. After all, they can still sell iron pellets, DRI, even slabs if desired, in addition to sheet/plate. Because of this, and assuming no changes to the S232 situation, I’m expecting a different correction this time around, and that prices will ultimately settle at higher levels than many might expect.”

I welcome more comments on this very important subject as to what will happen to steel prices once the market “peaks.” You can reach out to me at John@SteelMarketUpdate.com  

Infrastructure

The next five months prior to the 2021 SMU Steel Summit Conference are going to see the media obsessed with infrastructure negotiations as President Biden is finally the first president to take the future of the United States seriously enough to put something major on the table. Of course, no one wants to pay for it, but we all know it is way past due.

I agree with President Biden when it comes to infrastructure. It is time to go big or go home. If we and our children are going to be able to compete against the Chinese and the rest of the world, we need the world’s best infrastructure. We also need to prepare for the electrification of transportation, clean water, new roads and bridges, high speed rail (one is being built one-half mile from my home in Florida), renewable energy (including nuclear power plants), 5G broadband coast to coast, improved ports and airports, improved schools and medical facilities, and we need to make key components such as memory chips and medicines here in the U.S.

It is my opinion (and I don’t reside in Washington, D.C.) we will see an infrastructure bill pass through Congress this year. My gut feel tells me our Aug. 23-25 conference will be perfectly situated to discuss what will be contained in the bill and how it will ultimately be funded.

2021 SMU Steel Summit Conference

As of today, only one SMU employee has not yet received their first COVID-19 vaccine. The rest of my staff have been vaccinated. The pace of vaccinations in the United States is now close to 3 million shots per day, and the projection is everyone who wants a vaccine (and we hope all of you reading this will get the vaccine) will have one by July 2021.

The 2021 SMU Steel Summit Conference will be held back in Atlanta where it has been for many years prior to last year’s miss due to the pandemic. We are ready to get back to networking in person and putting on the best agenda in the industry.

I had a question earlier this week regarding hotels and when you should plan on arriving for this year’s conference, which will be held in-person at the Georgia International Convention Center in Atlanta on Aug. 23 through Aug. 25. My recommendation is to arrive Sunday evening or early on Monday morning as our “Pre-Summit” program will begin at 9 a.m. ET this year. We will have programs on steel hedging, innovation, the use of AI in the industry and more. We will provide lunch on Monday, then our full program will begin at 1 p.m. ET as I open the program and welcome the industry back. Our first keynote speaker will be Michael Smerconish of CNN/Sirius XM. Also on the agenda for Monday is Lourenco Goncalves, Chairman, President & CEO of Cleveland-Cliffs, followed by our first networking cocktail party.

We do not have a room block set up as we have found the rates are better for the attendees to book directly with the various Marriott hotel brands located next to the Georgia International Convention Center. The hotels include the Atlanta Airport Marriott Gateway, Renaissance Concourse Atlanta Airport Hotel, SpringHill Suites by Marriott Atlanta Airport Gateway and there is a new Marriott hotel called the AC Hotel Atlanta Airport Gateway. All hotels mentioned are located within easy walking distance of the conference facility. I have linked each of the hotels to their websites for your convenience.

Registrations are approaching 300 executives as excitement builds for our conference. Here are a few of the companies that have registered for the conference this week (those with an * mean more than one person from the company is attending): Altec Industries, Inc., AOC Metal Works, ArcelorMittal, Goodman Manufacturing*, PADNOS Recycling*, Samuel, Son & Co.*, Trinity Industries, WSM Industries, Arcosa, Inc.*, New Process Steel*, Steel and Pipe Supply*, and Worthington Industries*.

You can learn more details about the conference, costs to attend and how to register by clicking here.

American Metals Supply Chain Institute (AMSCI formerly AIIS) Golf Tournament

On April 20, 2021, the AMSCI will host their annual Gulf Region Golf Tournament at the Wildcat Golf Club in Houston, Texas. This will be the first live event this year for the AMSCI, which will follow accepted safety protocols (the event will be held outdoors including a BBQ). You can learn more about this event, costs to attend and how to register by clicking here.

Next SMU Community Chat Webinar: April 14 with Rick Marabito, CEO of Olympic Steel. You can register for this free webinar by clicking here.

Things are slowly returning to normal. I can say that because other than having already receiving my vaccinations, for the first time in a year I went to the dry cleaner to deposit dress clothes and pick them up. A memorable week as I prepare to go out into the public once again.

I want to wish everyone a safe holiday weekend.

REMEMBER: NO SMU PUBLICATION ON SUNDAY, APRIL 4 DUE TO EASTER HOLIDAY

As always, your business is truly appreciated by all of us at Steel Market Update.

John Packard, President & CEO, John@SteelMarketUpdate.com

Latest in Final Thoughts

Final thoughts

Last week was a newsy one for the US sheet market. Nucor’s announcement that it would publish a weekly HR spot price was the talk of the town – whether that was in chatter among colleagues, at the Boy Scouts of America Metals Industry dinner, or in SMU’s latest market survey. Some think that it could Nucor's spot HR price could bring stability to notoriously volatile US sheet prices, according to SMU's latest steel market survey. Others think it’s too early to gauge its impact. And still others said they were leery of any attempt by producers to control prices.