Final Thoughts

I am going to give you my opinion (which is what Final Thoughts is all about) based on what I know today and what my gut feel is for the next few months. I also reserve the right to change my mind (don’t bet the farm on my opinion) as I gather new information each and every day. Putting the pieces of the puzzle together can be complicated.

Our service center data providers received a copy of our Service Center Inventories “Flash Report” last Friday. I cannot divulge what the report said since it is only for our data providers, but our initial analysis indicated growth in flat rolled inventories. We will produce our full report, which is available to Premium members and our data providers, at the end of this week.

Late last week I had discussions with a few service centers who reported at least two, possibly three, steel mills that had some “holes” in their books for June and July production. This is the first time I have learned of openings since prior to the ice storms in Texas and elsewhere in the South. The size of the holes is unknown, and in no case did I catch wind of any discounting in spot pricing due to the holes. It appears the tons that were being offered were to contract or long-standing customers and not available to the open spot market.

The issue of automotive production reductions due to chip and other shortages continues to be in play. I heard one auto CEO, speaking on CNBC late last week, who advised that the shortages could last through the end of the 2021 calendar year. However, demand remains quite strong, and the industry will build as many cars and trucks as possible.

Were some of the holes reported to SMU last week nothing more than an adjustment to order books by mills that have a high exposure to automotive? Will these holes continue to develop and grow over time?

I have also been getting comments from small and medium-sized manufacturing companies that have been blindsided by the record-high steel prices (and other commodities) and have been telling me how badly their businesses are being affected. Much like the federal government, which for some reason can’t see any inflation on the horizon (when everything from steel to lumber has more than doubled in price), the issue is: How long can companies absorb $1,500+ per ton hot rolled before demand breaks?

I don’t know the answer to that question. The only way I can look at it logically is in daily life to see if my habits are changing, or those around me. I am hearing complaints from those who are building houses (but they haven’t stopped the project) and the cranes on the horizon have not diminished. I also spent part of last week looking for a new car for my daughter. Inventories are low and there is not much discounting, and she still needs a new car.

This market will top out–probably sooner than those who think it will last through next year and later than those who think it has already peaked.

In my opinion, with higher flows of foreign product and buyers willing to take the risks to buy expensive foreign tons in order to protect themselves, we should see the market topping out over the next couple of months. How quickly it rolls over and how far it drops? My recommendation would be to go to our SMU Steel Summit Conference to find out the answers to those questions, because I don’t have them right now.

Other SMU Events

Brett Smith, senior director of government relations at the American Iron and Steel Institute (AISI), will be the featured speaker during the next SMU Community Chat on Wednesday, May 12, at 11 a.m. ET.

Smith serves as liaison between AISI member companies from the American steel industry and the U.S. Congress and federal agencies. He is an infrastructure policy expert – which means his insights will be of interest as Congress debates a potential multi-trillion-dollar infrastructure package.

Join us for this 45-minute webinar, which is free and open to all. Click here to register.

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

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