Final Thoughts

Final Thoughts

Written by Tim Triplett

The benchmark price for hot rolled steel has declined for two weeks in a row, according to Steel Market Update’s latest surveys of steel buyers. In both cases, the decline was a mere $5 per ton. Margins of error being what they are, your takeaway should not be -$5, or even a decline (which could reverse next week), but rather that hot rolled steel prices appear to be plateauing.

gearsWhen it comes to steel prices, it’s also unwise to generalize. End-use demand varies widely by product. The big jumps in hot rolled prices seen week after week for the past year may be leveling out, but cold rolled and coated prices continue to rise. SMU reported increases of $30-35 per ton for cold rolled and galvanized this week, following flat price tags the week before.

Anecdotally, most buyers commenting to SMU say the mills are still holding the line. “I’m not seeing any easing yet. The mills still are not budging on price,” is a common refrain.

Many respondents think the market is at or near an inflection point. With availability improving and inventories balancing, there’s no longer the same urgency to buy tons at any cost. Here’s what a few service center and OEM execs had to say this week:

“I sense the market is changing. It appears the desperation for steel buying has waned. Buyers are waiting for the steel mills to complete their maintenance outages to start negotiating on prices again.” 

“The market is still strong, but inventories are balanced, and people aren’t buying out of fear that there will be no steel.”

“There’s more availability and our customer demand has slowed in the last few months. We feel very comfortable about supply through Q4, where we were uncertain a few months ago.”

Gradual Correction Ahead?

Nearly all the buyers responding to SMU’s questionnaire this week believe prices are at the beginning of a gradual slide back to more reasonable levels, not the sharp correction forecast by many analysts. Here’s a sampling of their perspective:

“I expect a gradual downturn. Section 232 and mill consolidation are going to prevent a sharp downturn. Our prediction is a $500/ton slide over 4-6 months, then in Q2 of next year a $250-350 increase. These sound like big numbers, but that was all prior to COVID.”

“I tend to believe the front end of the correction will be more gradual in nature, given the number of mill outages slated for remainder of the 2021, and because buyers will rely primarily on contract tonnage to ride out the year.”

“Inventories have grown and auto continues to struggle. The mill outages will hide some of this, but once you get into the first quarter and some of the new capacity hits the spot market, the pressure is real on prices coming off.”

“I don’t expect a sharp downturn. I believe domestic steel prices will be comparable to European steel prices in the first half of 2022. Demand is still strong, lead time is still around eight weeks, and new capacities will take time to ramp up.”

“Gradual correction. Outages will still help to partially limit supply and Q4 will likely see seasonal decreases in demand. But from what we’re hearing, Q1 demand looks to be stout, therefore steel will be bought in late Q4 to support it. The market will start to ease back up at that point.”

“It will be a gradual plateau to softening based in the immediate term on Q4 outages, in the medium term on solid service center and OEM demand, and in the long term based on a return of automotive demand. HR at $2,000/ton isn’t realistic forever (unfortunately), but $600/ton shouldn’t be either.”

“The market is hitting a plateau, I believe, but with lead times out so far and contract negotiations going on, I don’t see the mills needing to offer lower prices. The age-old rule-of-thumb that ‘if the market isn’t rising, it’s falling’ may very well be outdated. With basically every other long-term rule being out the window, what makes people think that one isn’t long gone as well.” 

“I think we’re peaking now. The worsening of the auto production situation will become more evident in the near future, with mills either having to sell more tons into the spot market or make further cuts in output. This may not come to a head until Q1, and the risks of a severe drop in prices later this year and into next is growing by the day. Between what looks to be a surge of import buying due late this year and early next, along with continued anemic auto output, a storm is brewing. Throw on top of this a resolution to the Section 232 tariffs with the EU late this fall, and new production coming online in the U.S. and in Mexico, and it’s all setting up for a potentially very volatile Q1.”

Some sound advice from one reader: “We are hopeful it’s a gradual correction, but we are preparing for a sharp move down.”

SMU Events

There’s still time to register for SMU’s next Steel 101: Introduction to Steel Making & Market Fundamentals Workshop, to be held virtually on Oct. 5-6. In addition to the classroom portion with SMU’s expert instructors, participants will get a virtual guided tour of a steel mill. You can learn more about next month’s Steel 101 workshop by clicking here.

Also, if you’d like to prepare for potentially volatile times ahead, check out SMU’s Steel Hedging 101 workshop. It will be held on Nov. 2-3 with instructor Spencer Johnson of StoneX Financial Inc. You can sign up by clicking here.

SMU is in addition taking registrations for the Tampa Steel Conference on Feb. 14-16, 2022, at Marriott’s Water Street Hotel in Tampa, Fla. This will be a live and in-person event. You can learn more by clicking here

As always, we appreciate your business.

Tim Triplett, SMU Executive Editor,

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