Final Thoughts
Final Thoughts
Written by Tim Triplett
August 19, 2021
Settling on the direction of SMU’s Price Momentum Indicators has been an easy task for the past year. Prices on all products were clearly moving upward week after week as demand continued to outstrip supplies. Today, the market is changing, and the trend is less clear. Determining price momentum is considerably trickier.
SMU does not forecast steel prices; we leave that to the experts at our parent company CRU. But we do feel an obligation to offer our view on the general price direction based on the various market factors that we track, our survey data and observations from the many buyers we speak with on a daily basis. There’s no hard and fast methodology, no specific formula or algorithm, just our very well informed opinion. It should be just one data point among many you consider when making your purchasing and inventory decisions.
Various indicators have been sending mixed messages over the past month. Flat rolled steel prices are no longer moving in lockstep. Hot rolled coil prices have continued to rise, reaching a record high of $1,935 per ton this week. But the prices of coated steel products have seen some small declines lately. Steel buyers’ sentiment is higher than it has ever been, while lead times have moved up and down a bit, depending on the product.
The data and comments from service center and OEM execs show little weakening of steel demand, despite the incredibly high prices. Less than 10% of survey respondents report any declines in demand for their products and services. Yet nearly 30% say they are now having some difficulty passing higher prices on to customers.
Steel supplies are not quite as tight. The majority (52%) of respondents said they are now seeing more availability from domestic mills. Not long ago most buyers said their biggest challenge was finding steel, at any price. Today, the majority (53%) say their inventories are balanced at a comfortable level and they are only looking to buy steel that is already sold.
So, as you can see, there’s a lot to digest. But with so many conflicting signals to consider, it may soon be time to switch momentum to Neutral, at least on some products, to make sure we don’t overly influence the market as it establishes a clear direction.
Other Survey Results
Here’s some additional findings from our market trends survey this week:
- HRC prices continue to rise. SMU’s current benchmark price for hot rolled is at $1,935 per ton. The consensus view of around 60% of buyers is for HRC to reach or exceed $2,000 per ton sometime in the next quarter or two, with prices then leveling off. “We’re getting close to hitting a plateau, not a peak,” said one buyer. “I think we can all agree that $2,000/ton is a lock. I expect a plateauing from there,” said another. “Imports are too strong to allow domestic prices to keep moving higher. Mills are still quoting ridiculous numbers,” added a third.
- Steel execs are excited about the infrastructure legislation working its way through Congress, and the majority of those surveyed by SMU this week expect it to have a significant impact on steel in the next year or two. “Without a doubt, it’ll be big. Granted, more for rebar and structurals than sheet, but it’ll be a major boon to all of us,” said one respondent. “The government doesn’t do anything fast,” added another. “It will take 2+ years to see any impact.”
Scrap Prices
The scrap market began trading today with prime offers reportedly down $50/GT and obsolete grades down $25/GT. Scrap prices are expected to be lower when the market settles next week, though perhaps not that much lower. Much depends on pig iron prices and export demand for shredded scrap. Too soon to tell if scrap will trend lower for long enough to affect finished steel prices.
Fabtech’s Coming Soon
The Fabricators and Manufacturers Association (FMA) suffered a big blow last year when it was forced to cancel its annual Fabtech trade show due to the pandemic. Fabtech 2021 is on track to display the latest in metal processing and fabrication technology all in one place, Chicago’s McCormick Place, on Sept. 13-16. Given the windfall profits from the record-high steel prices that many companies have to invest, the event should draw a big crowd.
No Issue on Sunday
Steel Market Update will not publish a newsletter on Sunday evening due to the Labor Day holiday. We will resume our normal publication schedule on Tuesday. We will conduct our usual market trends survey on Monday and Tuesday, however, and would truly appreciate your participation.
SMU Events
SMU will host two workshops in October and November. On Oct. 5-6, we will virtually host our next Steel 101: Introduction to Steel Making & Market Fundamentals Workshop. You can learn more about the Steel 101 workshop by clicking here.
On Nov. 2-3 (half day each) we will virtually host the next Introduction to Steel Hedging: Managing Price Risk Workshop. You can learn more by clicking here.
SMU will also co-host the Tampa Steel Conference, along with Port Tampa Bay, on Feb. 14-16, 2022, at Tampa’s Marriott Water Street Hotel. You can learn more by clicking here.
As always, we appreciate your business.
Tim Triplett, SMU Executive Editor, Tim@SteelMarketUpdate.com
Tim Triplett
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Final Thoughts
Steel equities and steel futures fell hard after news broke earlier this week that the US and Mexico might reach an agreement that would result in the 50% Section 232 tariff coming off Mexican steel. The sharp declines didn’t make much sense, especially if, as some reports indicate, Mexico might agree to a fixed quota. They didn't make sense even if steel flows between the US and Mexico remain unchanged.
Final Thoughts
Even before the news about Mexico, I didn’t want to overstate the magnitude of the change in momentum. As far as we could tell, there hadn’t been a frenzy of new ordering following President Trump’s announcement of 50% Section 232 tariffs. But higher tariffs had unquestionably raised prices for imports, which typically provide the floor for domestic pricing. We’d heard, for example, that prices below $800 per short ton for hot-rolled (HR) coil were gone from the domestic market – even for larger buyers.
Final Thoughts
I want to draw your attention to SMU’s monthly scrap market survey. It’s a premium feature that complements our long-running steel market survey. We’ve been running our scrap survey since late January. And over just that short time, it’s become a valuable way not only for us to assess where scrap prices might go but also to quantify some of the “fuzzy” indicators - like sentiment and flows - that help to put the price in context.
Final Thoughts
I think there is an obvious case for sheet and plate prices going higher from here. That’s because, on a very basic level, the floor for flat-rolled steel prices, which is typically provided by imports, is now significantly higher than it was a week ago.
Final Thoughts
We're about to hit 50% Section 232 steel tariffs. What could happen?