Final Thoughts

Final Thoughts

Written by Tim Triplett

The big question entering 2022 is how fast, and how far, steel prices will decline. As Wolfe Research Managing Director Timna Tanners said during our Community Chat this week, “the trajectory for 2022 will depend on the pace of destocking, the new capacity ramping up and demand.”

Steel Market Update’s latest survey data offers some insights into those three factors.


Demand in most sectors seems favorable entering the new year, based on anecdotal evidence from readers. About 72% of the service center and OEM execs responding to this week’s questionnaire reported that demand for their products is stable or “remaining the same.” The rest were almost evenly split on demand improving or declining. As one commented: “Demand is still very solid and has been throughout Q3-Q4. I don’t expect that to change.” Added another: “Most of our customers are projecting 10%+ growth for 2022, but we’ve yet to see shipments match this.”

Demand, of course, is a moving target and subject to steel prices and the whims of the economy (i.e., inflation, COVID and supply-chain issues). Service centers reported that 38% of their contract customers are releasing less steel than they did at this time last year. Around 80% of the manufacturers responding expect demand for their products to be flat or to decline marginally in the next three months. So while demand appears positive, it is anything but certain in the months ahead.

One big wild card for demand is the situation with steel inventories. SMU data shows the industry has gotten over inventoried from a combination of double ordering when the market was tight last year, imports just now arriving, and customers sitting on the sidelines waiting to see how low prices will go. About 38% of service centers say they have too much material on hand and are looking to reduce stock levels, which is significant considering that service centers account for about one-third of steel demand. Likewise, 20% of the manufacturers polled said they are planning to reduce their inventories as well.

While 69% of the service centers and manufacturers surveyed this week now consider themselves active buyers, the other 31% tell SMU they are in a wait-and-see mode. “There’s too much inventory and too few buyers,” commented one exec. “We are sitting on our hands for a bit, as we still have decent inventory levels,” said another. “Our customers are waiting, so we see no reason to buy either,” added a third.

In her presentation on Wednesday, Tanners detailed a dozen mill expansions that will add some 18.6 million tons of steelmaking capacity to North America by 2025 – 12 million tons of it this year alone. That’s an additional 23% of sheet supply in total – with little chance of a comparable increase in consumption. Thus Tanners and Wolfe Research predict there’s a “sheet storm” on the horizon that bodes ill for steel prices.

What does all this mean for the trajectory of steel prices? SMU has tracked steel price declines averaging approximately $25 per ton ($1.25 per cwt) per week since the early September peak for a total drop of $420 per ton. SMU’s check of the market earlier this week put the benchmark hot rolled price at $1,535 per ton. If the declines continued at that rate, the HR price would be down another $300 per ton – taking the average HR price down to nearly $1,200 per ton – by the end of the first quarter. Wolfe Research is more optimistic in the short term, forecasting a somewhat more gradual downward trajectory, with Q1 HR prices hitting $1,300 per ton. Wolfe believes the downtrend will continue, however, with HR ending the year around $750 per ton, where it could stay for the next couple of years.

Not good news for anyone with inventory. But look on the bright side. If that proves correct, the new normal for HR may be well above the roughly $600 per ton average we’ve seen over past decade or so.

It should be noted that Wolfe’s forecast is considerably more pessimistic than those of most mills, who still see $1,000 per ton hot roll in their future.

Views Vary on Inflation 

SMU’s questionnaire this week also probed buyers’ feelings on the effects of inflation in the first half of this year. The vast majority, 80%, are at least somewhat concerned, and 12% are very concerned, about the potential impact of rising prices on the economy. Only 8% said they are unconcerned. “It won’t be as bad as 2021 was,” predicted one respondent. “I’m not a believer that inflation will subside after supply chains are fixed. Prices are sticky,” said another. “I’m not as concerned about inflation as I am about the government’s reaction and how they try to control it. They could overreact and stimy economic growth,” warned a third steel exec.

If you’d like to take a look at our latest survey results yourself, you can find them here. And if you’d like to participate in our surveys – so that our data reflects your company’s day-to-day experiences – please reach out to Brett Linton at

As always, we appreciate your business.

Tim Triplett, SMU Executive Editor,

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