Final Thoughts

Final Thoughts

Written by Tim Triplett

Steel prices continued to slide this week with the benchmark hot rolled number down another $40 per ton to an average of $1,730 per ton. That’s a decline so far of $225 per ton, or 11.5%, from the peak of $1,955 per ton in early September.

gearsIn our questionnaire this week, SMU asked buyers where they believe hot rolled prices will finish the year. About 40% think (or hope perhaps) that HR will still be at $1,700 per ton or above at year’s end, while the other 60% see prices somewhere below that line.

Calculating a weighted average of all the responses puts the HR price on Dec. 31 at roughly $1,670 per ton. That’s down another $60, which is not unreasonable with 24 days left in the month. In fact, that may be a bit optimistic considering that HR has declined by $100 per ton in the past three weeks. For those keeping score, HR began the year right around $1,000 per ton.

Where prices finish 2021 is not the question on everyone’s mind. It’s pondering where the decline will level out in 2022 that is keeping people up at night. John Armstrong, who runs the Reibus online marketplace, has a unique perspective situated between buyers and sellers. He is forecasting a further 25% decline in steel prices in 2022, with demand that could be relatively flat depending on how the economy fares (see related article in this issue). His is just one view, of course, but it appears there’s no getting off this roller coaster ride for a while.

Getting Crowded on the Sidelines

SMU also asked readers this week: Are you an active buyer or staying on the sidelines? Not surprisingly, many service centers and manufacturers (40% of respondents) are holding off on buying today in anticipation of lower prices tomorrow. Many find themselves with too much inventory – quite a contrast from the short supplies just a few months ago – which raises questions about demand heading into next year. Here are some of their comments:

“We overbought in fear we would run out; we took every pound of prime the mills offered.”

“The mills caught up, and we are over-inventoried. Long lead times at the picklers have complicated things. It will take six more weeks to balance. We expect demand to bounce a bit after the holidays. We are not overreacting to the short-term dynamics.”

“We have a lot of import on order, so we are only purchasing small quantities domestically.”

“We are only buying as needed. We are cutting our inventory position, but we still need to order steel to stay in business.”

“I have enough material through Q1.”

“We are waiting until January.”

Scrap Sideways for December?

As of our deadline today, December scrap had not quite fully settled. But it appears prices for both prime and obsolete grades will move mostly sideways this month. We’ll have a complete report in Thursday’s issue.

Looking back at the past year, one of SMU’s expert sources offered the following retrospective:

“In the U.S., scrap prices increased dramatically along with the price of steel during Q1 and Q2 of  2021. Prices for export scrap also rose because many non-traditional buyers needed cargoes as they came back from pandemic closures. The prices for prime grades in the U.S. led the rise upward, as shortages of automotive factory scrap aggravated an already demand-push market. Prices leveled out in Q3, but busheling hung on to its premium over shredded. The market did not take a tumble until October when prices dropped $50/GT. Even a $50 decrease isn’t really that much when prices are well over $500/GT. In November, the market seasonally adjusted upward as we headed into the holidays and winter. In December, the tenor of the market is upward, but mills are hesitant to buy major tons as they try to adjust their year-end inventories for tax purposes. So, sideways pricing for December is not surprising, especially at these price levels.”

SMU Events

Note that there have been some changes to the schedule of our workshops. Our next Introduction to Steel Hedging: Managing Price Risk course will run LIVE and in-person on Feb. 14-15, 2022, in Tampa, Fla., alongside the Tampa Steel Conference. We will also be offering alternative dates for virtual training on April 26-27, 2022, for those who are unable to make the February course. Email for more details or answers to your questions.

As always, we appreciate your business.

Tim Triplett, SMU Executive Editor,

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