Final Thoughts

Final Thoughts

Written by John Packard


Looking for Signs

One year ago, benchmark hot rolled prices bottomed at $440 per ton ($22.00/cwt). Since then, steel prices have been on a tear with spot hot rolled more than four times higher at nearly $1,900 per ton ($95.00/cwt). The net result from this 52-week march higher is the way steel buyers view the market and inventories have changed. The question is, what changes will remain once the market finds its equilibrium?

Prior to the Great Recession of 2008/2009, service centers carried an average of close to three months supply of inventories on their floors. When we got back to a more normal market, service centers had found ways of conducting their business with a lot less inventory. We also saw a large increase in the number of steel pricing contracts tied to the CRU index. The pain of the Great Recession resulted in controls on over-spending and mitigation of risk.

John Packard Summit 18As we look at what is painful in this market cycle, we imagine there will be even more contracts tied to an index, and companies will be more supportive of hedging their risk through financial instruments.

I anticipate the relationship between workers and their offices will be altered for years to come. No longer is it necessary to spend the day in the office exposing yourself to the risk of getting COVID. We have learned to be productive (and in some cases even more productive) than when we all worked out of main offices.

There are also many discussions as to what is expected of both the company and the employee when it comes to health, vaccinations, and the better good of the company/country/family. COVID-19 and its variants will probably be around for many years, and we will all have to learn the best way to live with it and still remain viable.

The combination of the pandemic and moves toward decarbonization are transforming the transportation industry. I am looking forward to Gregg Troian of PGT Trucking and Jeffrey Short of the American Transportation Research Institute (ATRI), who along with Michael Cowden of SMU will have a discussion at this year’s SMU Steel Summit about the changes to transportation and the trucking industry.

SMU is collecting data from steel distributors as we look for signs of change in service center inventories and shipments. We have been capturing the higher percentages of contract arrangements between end users and the steel distributors. We have also captured a small increase in the number of days of inventories being held by the service center segment. At what point will the build of inventories exceed monthly steel demand? This is one of the signs we are carefully monitoring for a change in both direction and the ability to actually build unsold inventory.

When it comes to inventories, we are carefully watching the increase in foreign steel coming to the United States. With benchmark hot rolled prices around $1,300 per metric ton ($1,433 per net ton) elsewhere in the world, there is plenty of room for foreign suppliers to absorb the 25% Section 232 tariff and still be less expensive than domestic steel mills.

I spoke with a number of traders today who told me (1) there are more sources of supply looking to play in the U.S. market, and (2) more supply means more competition and pressure on foreign prices. The traders who have had regular business into the U.S. markets are reporting they now need to change the way they have been going to market and negotiate more on certain products. I was told today that hot rolled from Turkey can be purchased at $1,500 per ton ($75.00/cwt for base HRC), which is almost $400 per ton below today’s hot rolled price. The trader who told me this was trying to sell another country’s HRC for $1,640 per ton with no luck. I was told they would have to make an adjustment if they wanted to sell the non-Turkish material. The trader told me the Turkish mills were offering less due to weakness in their pipe and tube business because of high prices frightening away those buyers. A sign of change or a short-term development? Good question and one we won’t know the answer to for a month or two.

According to one mill conversation I had today, “Astute consumers with partnership-type relationships with their regional mills are probably in a position to find a receptive supplier to ensure that price mechanisms provide a premium to the mill, but also keep them competitive with random speculative and risky (think L/C risk) import that would otherwise show up late in the year to early next….” Is this a sign of a change in the market? Too soon to tell, but worth watching carefully.

We got word this afternoon that the Detroit steel mills have entered the ferrous scrap markets and set prices for August. We are seeing no change in prime grades of scrap (busheling and bundles) while obsolete grades went down by $20 per gross ton. We anticipate the balance of the scrap markets will come into focus as the week progresses.

Steel SummitSMU Steel Summit Conference Update

We are now less than three weeks away from the start of our first “live” conference in two years. The 2021 SMU Steel Summit Conference will be held on Aug. 23-25 and will have quality speakers from both within the steel industry as well as from outside the industry. Since I mentioned scrap in my comments above, we will have an excellent scrap panel at this year’s conference with Ben Abrams, CEO of Consolidated Scrap, Ryan McKinley, Senior Analyst at CRU, and Paul Lowrey, President of Steel Research Associates. The panel is moderated by Michael Cowden of SMU. You can view the complete program by clicking here.

Registrations continue to come in for the conference. We now expect somewhere around 1,000 attendees (live and virtual) once the final count comes in. We added the following companies over the past couple of days (those with an * mean more than one person will be attending from that company): American Metal Group (AMG), Applied Value Group*, Calstrip Industries Inc., Carroll Technologies Group*, Great South Metals, ITT-Wolverine Advanced Materials, Kenilworth Steel, Marubeni-Itochu Steel America Inc., Metal Wholesale, North Shore Steel, Optima Steel International, LLC, Reynolds Services, Inc.*, Shyam Ferro Alloys Limited, Sourcing Value, Toyota Tsusho America, Inc., and Wallner-Expac, Inc. We also saw the following companies add more people to their existing registration: B&W*, Ferragon Specialty Steel*, and Pacesetter*.

You can join the companies recognized above along with the almost 400 other companies attending this year’s conference by registering, which you can do by clicking on this link (works for both live and virtual registrations) or going to the following web address: https://events.crugroup.com/smusteelsummit/home

The Steel Summit platform is now open and available for those registered for the conference. The platform is replacing the App we used for previously held conferences. The platform allows you to view and interact with the other registered attendees (both in-person and virtual attendees). You will be able to view the program, speakers, sponsors and exhibitors. The platform will allow you to live stream the conference speakers from any location with an internet connection. After the conference has concluded, you will also be able to go back and view pieces of the program you may have missed or wanted to see again. You will also be able to get copies of speaker presentation slides. I highly recommend you log into the platform prior to the conference beginning. If you experience any issues, there is a green dot in the bottom righthand side of the platform page, which is a live support person who can address your questions about the platform or assist you should you have an issue logging into the site. Live assistance is available from 8 a.m. until noon ET Monday through Friday. You can also send a note to conferences@crugroup.com if you need the link or assistance that you can’t get directly through the platform.

We will have a free webinar about the conference including information on how to best utilize the conference platform. That webinar will be held at 11 a.m. ET on Wednesday, Aug. 11. You can register for that webinar by clicking here.

By the way, be aware of SCAMs related to our conference. No one has access to a list of our attendees, so those selling names are not legitimate. The same goes for companies representing themselves as affiliated with the hotels working with SMU for the conference. You can get the full list of attendees from the Steel Summit platform. You will need to make reservations for your hotel directly with one of the Gateway Hotels (which I believe are all sold out, but there may be some cancellations, so I would recommend you try them first: Atlanta Airport Marriott Gateway Hotel, Renaissance Atlanta Airport Gateway Hotel, AC Hotel Atlanta Airport Gateway, and SpringHill Suites by Marriott Atlanta Airport Gateway). If those hotels are full, I would suggest two hotels located on Best Road, which is less than two miles from the GICC: The Atlanta Airport Marriott Hotel or the Westin Atlanta Airport Hotel.

The last in-person event I participated in was in early March 2020. For me, it will have been 18 months since I was in a large meeting or conference. I was hoping by now a larger percentage of the U.S. population would have been vaccinated, which would allow us to go without masks at this year’s event. Right now, there is a mask mandate at the Georgia International Convention Center (GICC) and we are bound by their rules. This means we will have to be even more creative to make sure we can be identified by prospective suppliers or customers. The dress code at this conference is “business casual” with golf shirts with your company logo recommended. The golf shirts will assist in us being able to recognize you with your mask on. I will have an SMU logo golf shirt on (as will the rest of the SMU team) as well as one of my traditional “hats” to help you recognize me. I’m not yet sure what will be the hat of choice this year…to find out you will need to attend.

The next Steel 101: Introduction to Steel Making & Market Fundamentals Workshop will be held virtually on Oct. 5 & 6, 2021. Registration can be made by clicking on this link

The next Introduction to Steel Hedging (used to be called Steel Hedging 101) will be held virtually on Nov. 2-3, 2021. More details and registration will be available soon.

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

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.