Final Thoughts

Final Thoughts

Written by Michael Cowden

I’ve heard more than a few times now that we should keep a close eye out for falling steel prices because, “Look what happened in lumber.”

In case you’ve been under a rock (or tree), lumber prices fell more than 40% in June, their biggest monthly drop on record, according to CNBC and others.

gearsWhat if steel prices fell by the same amount over the same period? Steel Market Update’s hot-rolled coil price stands at $1,770 per ton ($88.50 per cwt). A similarly rapid descent in steel would mean $1,060 per ton ($53 per cwt) HRC.

Anything is possible. No one expected in mid-July of last year that HRC prices – $475 per ton at the time – would more than triple within 12 months. Here’s why I don’t think that kind of drop is probable in steel.

On the domestic scene, new capacity continues to be pushed back. The next slug of new hot-rolled coil capacity was supposed to come from Steel Dynamics Inc.’s new mill in Sinton, Texas, in late summer. But severe weather and flooding along the Gulf Coast mean that project has been kicked out to the fourth quarter. And other new capacity projects – think expansions at North Star BlueScope in Delta, Ohio, and Nucor Gallatin in Ghent, Ky. – aren’t coming online any sooner.

On the international front, Russia is taxing exports. That might lead to a short-term dip in prices as exporters of pig iron and slabs rush to beat the imposition of the tax – and as Brazilian suppliers of the same product have to contend with lower prices from a competitor. (Keep in mind Russia can’t export huge amounts of finished steel to the U.S. because of existing duties.) But longer term, the tax could reduce volumes from an important supplier to the global steel market. And less supply typically means higher prices.

Similar story in China. China has eliminated a tax rebate on steel exports and appears serious about reducing capacity. As is the case with Russia, China exports little steel directly to the U.S. because of prohibitive AD/CVD orders – more than 500% in the case of cold-rolled coil, for example. But it is a big supplier to other regions, such as Southeast Asia, that do supply the U.S. And so reduced supply from China will have an indirect impact here as well.

That’s macro stuff. How about the basic stuff that all of us can relate to?

It’s important to remember that steel and wood have some big differences. Cranking up an idled sawmill is a lot easier (and less capital intensive) than starting up a blast furnace that’s been mothballed for years. Case in point: Steel prices are at their highest point ever, and that still wasn’t enough to keep Cleveland-Cliffs’ from deciding to raze Ashland Works.

Also, let’s remember that the future is not a carbon copy of the past. It rhymes. But it does not repeat. I learned to drive in the 1990s. Gas was usually $1 or so a gallon. I had sticker shock when it got above $2 per gallon.

Gas prices dipped a little below $2 per gallon in the aftermath of the 2008 financial crisis. But about two years later, prices were back above $4 per gallon – their pre-crisis high – and then some. It took a global pandemic to get them briefly below $2 per gallon again. Gas prices in the last two months, in contrast, have been solidly above $3 per gallon, according to U.S. Energy Information Administration (EIA) data. And I’m betting that number will increase given how many cars I saw on the road during a recent family road trip.

Also, oil prices, which briefly went negative last year, are at around $75 per barrel now. And $100 per barrel oil doesn’t sound crazy to me, especially as more and more people resume driving and flying around the country again. Yes, new COVID variants are a real concern. But if current trends hold, and if oil hits $100 per barrel, demand for oil country tubular goods (OCTG) could shoot up as OCTG inventories drop. Restocking would create more demand for coil… You get the picture. If there is stuff that hasn’t shot up in price yet. It probably will. It’s just a matter of time.

Let’s bring it back to gas prices. I got used to $1-2 per per gallon gas when I was a teenager. But barring another pandemic, $2-3 per gallon (or more) is where gas prices are now. Gas at $1 per gallon isn’t coming back. Similarly, we all got used to $500-700 per ton HRC prices. Sure, HRC prices around $1,800 per ton probably won’t last forever. But maybe steel’s next generation is going to think that coil at $900-1,100 per ton is perfectly normal.

NexGen Leadership Awards

Speaking of that next generation, SMU NexGen Leadership Award nominations are due this week.

Nominations for the award – sponsored by the Steel Manufacturers Association (SMA) – must be in by July 16. The NexGen award is a great way to recognize talented individuals 35 or younger who have demonstrated exceptional skills and made your company more successful. 

All nominees are eligible for half-priced admission to this year’s SMU Steel Summit conference (Aug. 23-25 in Atlanta), where the winner will be announced. Nominees are also invited to a special cocktail reception on the first night of the event.

You can read more about the criteria for nominees and about what the winner will receive here:

As for SMU’s Steel Summit, registrations are well on their way toward our 2021 goal of 900 executives from across the steel supply chain. You can learn more about the conference here, and you can register here.

SMU Workshops

Registration is open for two popular SMU workshops: Steel 101 and Steel Hedging 201.

Steel 101: Introduction to Steel Making & Market Fundamentals Workshop will be held virtually on July 20 and 21. Our Steel 101 workshop covers all aspects of how steel is made and bought and sold. You can learn more about the agenda, our instructors, costs to attend and how to register by clicking here.

The second workshop coming up on our calendar is our Steel Hedging 201: Advanced Strategies & Execution Workshop to be held virtually on Aug. 3-4. This workshop is for those who have some experience with hedging price risk but desire a deeper dive into the subject. You can learn more about the agenda (which is two half days), instructors, 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.

Senior Editor Michael Cowden,

Michael Cowden

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