Final Thoughts

Take the weather: A cold snap in Texas last year caused the electricity grid to fail, resulting in widespread outages and soaring prices? (Remember “Snowmageddon.”) This year, a cold snap in Texas resulted in… not much.

Or consider outages. A year ago, the approximately three-month outage coming up at Cleveland-Cliffs Inc.’s No. 5 blast furnace would have caused an absolute frenzy.

Recall how closely the strike at Allegheny Technologies Inc. was watched because even the tons toll rolled at ATI’s Brackenridge, Pa., hot rolling and processing facility made a difference.

This year, the reaction to even an 80-90 day outage is more “meh” than “ahh!”

Why? For one, lead times for hot-rolled coil last February were approaching eight weeks – or roughly double their historic norms, according to SMU’s interactive price tool. The question was how much more extended they could get. This year, a three-week lead time from a domestic mill is not uncommon. And the question is when lead times might start extending again.

“Last year the fear was of mills not delivering on time and of being cut off,” one service center executive told me. “This year, it wouldn’t be so terrible if a mill said, ‘Let’s take a one-month holiday.’”

And then there is the matter of prices. I hesitated to even put that $1,200 per ton figure in writing. Because prices are falling so fast, that it might look antiquated by the time this article posts. And that’s no exaggeration.

I’ve talked to buyers who were offered steel on Monday at more than $1,200 per ton. And then CRU (our parent company) posted a nearly $150-per-ton week-over-week decline on Wednesday. Did those buyers get offered a discount to match the CRU’s big drop? No. But were they offered a price that was more than $50 per ton below what had been offered a few days earlier? Yes.

And keep in mind that it’s the marginal tons and marginal prices that tend to drive things both on the way up and on the way down. I’ve heard of cases where imported slabs rolled on a domestic hot strip mill on a March lead time are available for around $1,000 per ton.

Also, and as I’ve noted before, prices for large tonnages for delivery well beyond current lead times can be even lower. Are orders for 10,000 or more tons for less than $1,000 per ton for Q2/Q3 delivery a repeatable spot deal? No. But is that number out there? Yes.

I personally thought that mills would be digging their heels in around $1,200 per ton to try to slow the pace of declines – by idling capacity, taking outages or announcing price hikes. But that doesn’t seem to be happening. Not yet anyway.

That said, perhaps the sooner we get to a sustainable price, the better. Demand – according to our channel checks – is still good. Which means people are not on the sidelines because they’re not moving steel. It’s Steel Buying 101: They just want to wait until the dust settles before they go back in and commit.

“The pricing over the last year was absolutely unnatural,” a second service center exec said. “The sooner we can get to replace inventory at a price that is sustainable, the better.”

So that might be the silver lining to this correction. It might be sharp but swift. Contrast that to 2015, when prices dripped steadily lower all year. As several contacts noted, a one-time hit is preferrable to that death by a thousand cuts.

And while new capacity gets blamed for lower prices, let’s also remember that it might help to create a more sustainable environment for the North American steel industry over the long term.

A competitive price from new and efficient local mills would be good for manufacturers, good for demand – and good for more reliable and durable domestic supply chains.

By Michael Cowden, Michael@SteelMarketUpdate.com