Steel Products

The Week That Was: Was That The Tipping Point?

Written by Michael Cowden

Just because all major U.S.-based steel mills have reported quarterly results doesn’t mean that earnings season is over.

Results from mills based abroad are coming in. And those of you still paying attention to earnings might have noticed a change in tone between when Steel Dynamics kicked things off on July 19 and when Evraz last week flat-out said in its earnings release that a “possible correction” might occur in the second half of 2021.

So let’s do the numbers on the week that was:


Net income of $1.16 billion in the second quarter of 2021 up a whopping 27-fold from $43.6 million in the second quarter of 2020.

Where is the money going?

Not clear yet. But safe to assume that it’s toward “organic” expansions – in other words, not mergers and acquisitions (M&A) – and that those expansions are more likely than not to be in Mexico. That is the Latin American steelmaker’s primary market and the location of its new hot strip mill. So our bet is on downstream processing capabilities for the new mill at its industrial center in Pesquería, outside of Monterrey. And that mill, by the way, is expected to ship approximately 660,000 short tons (600,000 metric tonnes) in the second half, up from prior forecasts of 440,000 tons.

Quote of the call: “Prices are probably going to begin a downtrend at some point during the second half. But I don’t expect this to be a very profound downturn,” Ternium CEO Máximo Vedoya said. Asked whether a 50% correction to $1,000 per ton made sense, Vedoya said he didn’t want to specify where prices might bottom but said that figure was a “very logical number”.


Net income of $112.9 million in Q2 2021 – best quarterly showing since 2008.

Where is that money going? Probably not to a “heavy lift” acquisition like the Chicago-based service center’s deal for Central Steel and Wire. But the company is keeping its “eyes and ears open” for potential acquisitions – and sees a strong pipeline of “bolt on” acquisitions, Ryerson President and CEO Eddie Lehner said.

Also, don’t look to Ryerson to spend big money on imports.

Quote of the call: “Imports are sort of a comforting distraction at this point,” Lehner said. “Lead times are all over the place, and they’re extended and long. And I think with some of the recent indicators from the pandemic and the variants, getting those orders filled and getting them dependably across the water is a continuing challenge. So there’s no doubt that … folks are going to look to import more as a release valve. But we are not.”


Net income: $1.21 billion in the first half of 2021, more than $513 million in the same period last year.

Where is that money going? Probably not toward coal. Evraz aims to divest its coal business. Instead – and as it relates to the company’s North American operations – approximately $500 million is going toward a new, solar-powered long-rail mill at its operations in Pueblo, Colo.

Quote of the call: “Looking forward into the second half of the year … steel prices can cool off somewhat on the back of, first, some demand weakening, following rapid growth in the first half of the year. And second, Chinese government efforts to bring … unreasonable commodity prices to the lower levels,” Evraz CEO Alexander Frolov said.

The Takeaways

We think it’s notable that two major international steelmakers – Ternium has a small footprint in the U.S. but is huge in Latin America, and Evraz is big in Russia with a comparatively small footprint in the western U.S. and Canada – are acknowledging that a pricing correction is indeed possible. This under other circumstances would not be remarkable. But it is to the extent that this cycle has at times felt like climbing a mountain with no peak. All mountains of course have peaks – and perhaps the peak of this cycle is finally coming into view.

Companies continue to predict that the record profits will roll into Q3 and maybe into 2022 as well. That’s to be expected given that spot prices are at their highest point ever and that contracts will reflect those spot prices on a lag.

As for the spot market, and as SMU noted last Tuesday, prices are mixed for the first time in a year. Recall that U.S. hot-rolled coil prices bottomed at $440 per ton ($22 per cwt) on Aug. 11 of 2020 – almost exactly a year ago. Was that just a blip? Is the psychological impact of HRC prices nearing $2,000 per ton ($100 per cwt) giving buyers reason to pause? Or will such caution simply prolong the upcycle?

As our premium subscribers already know, early indicators are that service center inventories were up significantly in July. So maybe the tipping point will first be seen in service centers being a little less aggressive on the resale side. We are not suggesting that anyone is selling below replacement costs. Just that they might now be willing to negotiate a little on what those (still significant) premiums to replacement costs should be.

This Week

Earnings season is not quite over yet. We’ll be keeping a close eye out for earnings data from Canadian flat-rolled steelmaker Stelco, which reports earnings this week, as does Duisburg, Germany-based service center Klöckner & Co – which is known in North America as Kloeckner Metals. And we’ll also be keeping close tabs on prices to see whether a clearer trend on their directon will emerge.

By Michael Cowden,

Michael Cowden

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