Final Thoughts
Final Thoughts
Written by Tim Triplett
January 16, 2022
Selling secondary steel isn’t what it used to be in a market niche that seems to be getting smaller. The secondary market has always been about relationships and matching customers’ needs to the nonprime material that becomes available. And in the current environment, there’s even more wheeling and dealing, sources told me this week.
“It’s a very narrow, tricky, nuanced space to do business. Steel is plentiful, so you have to pick your battles,” said one veteran of the secondary space.
With the high quality of the steel coming out of U.S. mills today – many of them modern EAFs – fewer defective coils make it to market. Plus there are fewer manufacturers who will even consider secondary steel, outside of a shortage situation like the one seen last year. Their main focus is on product quality and throughput, not saving a few cents on steel. “Last year all kinds of companies were chasing coils they would never have considered before; today it is reverting back to the norm,” said one source. Thus the market is shrinking and sellers of secondary and excess prime are becoming members of a smaller, more exclusive club.
Their numbers could dwindle further if any succumb to the effects of plunging steel prices on their inventories. Many service centers had their best year ever in 2021 but invested much of that gain in new stocks, both prime and secondary, which are losing value by the day. So last year’s results won’t necessarily cushion this year’s fall.
Accounting tricks like inventory write-downs can help narrow the gap between a service center’s cost for steel and what a customer is willing to pay for it. But some losses are inevitable, at least until the price declines begin to plateau. “Even if we lose money on some of this inventory, we are replacing it with much cheaper material – so we will do well on the replacement, as long as demand doesn’t seize up,” said one exec.
Will demand be the saving grace for steel in 2022? That’s the hope, said sources, echoing a common theme. Commented one: “There is demand out there. The manufacturers are looking pretty strong, but they are sitting on their hands, waiting to let things shake out. Eventually they have to get off the pot.” (Click here for a related article in this issue.)
Those of you who are kind enough to respond to SMU’s biweekly surveys will see this question this week: At what pace are excess prime and secondary prices moving compared to prime prices? Please take a few minutes to share your thoughts and help us make our survey data as accurate and useful as possible. If you are a steel buyer and you are not receiving our survey invitations, please reach out to Brett Linton at Brett@SteelMarketUpdate.com.
Survey Results This Week
Nearly all the steel buyers responding to SMU’s questionnaire this week said that they continue to see increased availability from mills and that the pace of steel price declines is accelerating, especially on hot rolled.
Some notable comments:
“Anything you want, in any quantity you want, is available with normal lead times.”
“There’s mega spot tons available.”
“Mill lead times for HRC are 2/7, and for CRC and GI they are 2/14,”
“Prices are moving downward every week by $20-40 per ton.”
“It’s really strange that prices are declining so fast. Demand is still good, and we see contracts and backlogs – so why prices are deteriorating like this is beyond me.”
FMA’s Annual Meeting
Steel Market Update is a media partner for the Fabricators & Manufacturers Association Annual Meeting, scheduled for March 1-3 in Miami. Always a great event, this year’s program will be of particular interest to buyers and sellers of steel, as Cleveland-Cliffs Chairman, President and CEO Lourenco Goncalves will be a keynoter speaking on the future of the steel industry. Goncalves also will be honored as the Steel Man of the Year by the Association of Steel Distributors in a banquet March 1 for his many lasting contributions to the industry.
As always, we appreciate your business.
Tim Triplett, SMU Executive Editor, Tim@SteelMarketUpdate.com
Tim Triplett
Read more from Tim TriplettLatest in Final Thoughts
Final thoughts
Sometimes even in a bit of chaos there is complacency. And it seems that since March 2020, “a bit of chaos” has been the order of the day. That means in the world at large, and in steel specifically.
Final thoughts
SMU had the pleasure of attending the American Iron and Steel Institute's (AISI's) annual general meeting in Washington this week. It was a slow week in our nation's capital, so we were able to take a leisurely stroll around the National Mall and take in the sights. Just kidding. In fact, the meeting coincided with significant trade actions announced by the Biden administration. It included, among other things, additional tariffs on Chinese steel and aluminum.
Final thoughts
Our spot price is little changed this week after moving sharply lower last week on the heels of Nucor’s unexpected price cut. Here’s one thought on that trend: Nucor's weekly HR price (aka, its “Consumer Spot Price” or CSP) has to date functioned almost more like a monthly price.
Final thoughts
What's the tea in the steel industry this week? Here's the latest SMU gossip column! Just kidding... kind of. Yes, some of the comments we receive in our weekly flat-rolled market steel buyers' survey are honestly too much to put into print. Some make us laugh. Some make us cringe. Some are cryptic. Most are serious. We appreciate them all. Below are some highlights from our survey results this week. Some of the comments that we can share with you are also included, in italics, in the buyers' own words, with minimal editing on our part.
Final thoughts
Last week we wrote about a brief lull in price movement, labeling it a period of wait and see. It did, in fact, turn out to be pretty brief. This week... things are little bit different. Perhaps right now we are more in a period of "hope and pray" or "Here we go, hold on to your hats."