Final Thoughts

When asked if the high prices are hurting demand, one steel buyer told us, “Nada. At some point the naysayers will stop with the ‘Chicken Little Act.’ Folks might be buying slightly less, but not enough to hurt total demand. That wouldn’t really take hold until we get to $2,000/ton – and we won’t get there, right? RIGHT?!?”

We learned from one large OEM today that their volume of orders has “moderated” and “prices peaked two weeks ago in the Middle East, Pacific Rim and China. Prices are still rising in Europe. The market is clearly seeking a top, if it hasn’t already been met.”

While another OEM told us, “2020 was our company’s best year ever, though adjusted for inflation it was neck and neck with 2008. 2021 should top 2020 by double digits percentage-wise, and the brain trust here is forecasting this business pattern to continue for the foreseeable future. We’ll see what another ~30% increase to our steel costs, along with rising prices for most other commodities we use, will do to demand at the end of this month when we pull all of our cost increases through the ERP.” (SMU note: We will have to stay tuned on this one.)

I spoke with John Burns of John Burns Real Estate Consulting today about the residential real estate market. Demographic demand and the lack of inventory is going to push real estate developers to build as many as 1.9-2.0 million houses per year over the next couple of years. This is being fed by low interest rates, which are being kept artificially low due to the Fed buying mortgage-backed securities. In Burns’ opinion, the market can absorb 1.6-1.7 million houses per year without issue. We could see an over-build of inventory a couple of years down the road, but based on where we are in the market cycle fueled by real demand (and artificially low rates), the boom in housing should continue unabated for the next two to three years.

Burns believes, much like Alan Beaulieu of ITR Economics (one of our SMU Steel Summit speakers), that this will all end badly. We will need to pay careful attention to the Fed purchases of mortgage-backed securities, inventory levels and inflation.

We will have an article from John Burns answering questions about the current residential real estate market in Sunday evening’s SMU Executive newsletter.

Over the past two days, we have been conducting one of our Steel Hedging 101: Introduction to Managing Price Risk workshops with our instructor Spencer Johnson of StoneX. Out of curiosity, I asked him where the HRC Futures Market was trading in September, December and then in March 2022. He told me September last traded at $1,600 (July and August are more like $1,650), December 2021 last traded at $1,389 (which is higher than yesterday when it traded at $1,370), and the March 2022 HRC Futures Contract is trading at $1,175. This is quite amazing when you consider the past 10-year average is probably closer to $630-$650 per ton….

For those of you interested, the next two steel training workshops being conducted will be virtual. Our Steel 101: Introduction to Steel Making & Market Fundamentals Workshop will be held on July 20-21; you can find more details about that workshop by clicking here. In August, we will conduct one of our Steel Hedging 201: Advanced Strategies & Execution Workshops. The dates for this workshop are Aug. 3-4 (half day each day). You can find information on this workshop by clicking here.

In general, you can keep track of all the workshops we offer by clicking here or going to: https://events.crugroup.com/steel101/home

We are currently canvassing our service center data providers regarding their inventory, shipments, etc. We will have our Flash Report for data providers out on Monday, June 7, with the final report due the following Monday, June 14. If you are a service center or wholesaler and would like to become a confidential data provider, please contact Estelle. Tran@crugroup.com

If you would like more information regarding SMU newsletter memberships (subscriptions), please contact Paige@SteelMarketUpdate.com

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

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