Final Thoughts

Final Thoughts

Written by Michael Cowden

The Tampa Steel Conference has wrapped up, and I thank all of you who attended and who took the time to catch up with me on stage or along the sidelines.

Below are five themes that I took away from the event. If I were to sum it up in a sentence, it’s this: Steel prices are down, but costs for just about everything else are still rising.

gears1. Steel prices have fallen faster than expected

The pace of steel price declines has accelerated beyond even some of the most pessimistic forecasts. That has pummeled inventory values and led to real pain on the service center side.

The rapid normalization of domestic prices with foreign prices will make imports less attractive in future months. But that’s cold comfort if you’ve got high-priced material now.

Steel is pouring in from places I’m not used to seeing in the government data. Cold rolled from Nigeria. Really? I’ll believe it when I see it in the Commerce Department figures. I remember thinking something similar back in 2014 when someone told me to keep an eye on the numbers out of Vietnam. Really? Vietnam shipped less than 3,000 tonnes of flat-rolled steel to the U.S. that year. That number jumped to 61,345.6 tonnes in 2015 and then exploded to 734,883.6 tonnes in 2016. I’m not saying Nigeria is about to become a steelmaking titan. But keep an eye out for unexpected new players.

It’s possible that sheet prices will bottom soon. It’s also possible that the soaring prices of 2021 brought new players into the market as U.S. buyers scoured the globe for alternatives to the nearly $2,000-per-ton figures they were seeing from local mills last year.

And, as noted above, steel seems to be just about the only thing that’s seeing big price drops. Prices for just about everything else are up, which brings us to No. 2.

2. Supply chains are still in chaos

Recall that Tampa is a port-focused event. So we’ve got people down in the trenches of moving stuff – whether that be steel, produce or “super sacks” of anything from cement to coffee. What do they say about the state of play at U.S. ports?

The supply chain is still an absolute mess, and no one seems to have a clear sense of when things might get better. The situation was described to me as “a dumpster fire,” “flaming chaos” and more colorful terms that are not fit for a family publication such as ours.

In other words, what happened in LA/Long Beach did not stay in LA/Long Beach. Congestion has spread – like a certain virus that has also overstayed its welcome – to Houston, New Orleans and along East Coast ports too.

Even if the number of container ships stuck off the coast of California might be going down, the situation for bulk carriers is not getting any better. Also, the frustration in some smaller ports with fruit is real. Very green bananas might not be edible but they are perishable, and so someone with a boat of them will pay to jump to the front of the line.

That’s just the situation on the water. On land, if you’ve managed to secure a berth, good luck finding the trucks (and drivers) needed to move your cargo. And repeat that problem from the port all the way to the final mile of your cargo’s destination. Maybe especially along that final mile.

3. Labor (including white-collar staff) is in short supply and unhappy

It’s common knowledge now that just having a truck – or even your own fleet of trucks – does not mean that you’ll be able to get your steel from point A to point B. Because you still need people to drive those trucks, and drivers remain scarce.

Why are drivers in short supply? There are myriad reasons for that. One that came up at the conference is that tech companies are simply willing to pay more for labor than other industries.

Years ago, it was commonplace to say that local stores would close when Walmart came to town. The Amazon effect is different. When Amazon opens a warehouse near you, wages go up. Can you keep up? It reminds me of the situation that confronted aluminum smelters as Big Tech grew. Tech was willing to pay more for power, and so they got it at the expense of smelters who couldn’t keep up with the spiraling costs.

And my bet is it’s just a matter of time until that trend of wage inflation extends deep into white-collar ranks as well. At least judging from some of the chats I had along the sidelines. People are working at companies that recorded their best year ever last year. Did they get a raise and a bonus? Probably. Was it commensurate with the rise in profits? Apparently not. There is real anger and frustration out there. Where and to whom did all those record profits go? If you can’t answer that question, you might be down not just slitter operators but managers too.

4. Got scrap? Nope.

For a ports-focused event, there was an awful lot of talk about scrap. That’s because the new flat-rolled EAF capacity that was mostly theoretical a year ago is now here or soon will be. Those mills will be melting more prime scrap, pig iron, DRI and HBI. And it turns out that Cliffs is also using more prime scrap and HBI in the furnaces of its integrated mills too.

Where will the scrap everyone needs come from? Mills in Canada and Europe are looking to decarbonize – another big theme this year that wasn’t really on the radar a year ago – and shifting to EAFs. That means U.S. mills won’t be able to count on scrap from Canada and Europe to fill future gaps here.

Even if the U.S. were to turn to extreme measures like banning scrap exports, it wouldn’t help sheet mills much because it turns out we export very little prime. And pig iron from Russia or Ukraine is no longer a surefire way to keep a lid on prime prices. Two of the primary sources of foreign pig iron remained on the brink of war when this column was filed.

5. Demand is still good

Maybe too good. The problem is not so much demand but securing the people and things needed to meet it.

Just a few examples: Automotive demand should improve assuming the chip situation gets better, construction demand is solid and should get better as infrastructure spending kicks in, and energy demand should be firm with oil and gas prices rising sharply. And there is also strong demand from some relatively new end markets. Warehouses for Amazon and other online retailers. Also, for data storage. (Meta, for example.)

It will be interesting to see in the years ahead how much physical space and stuff, like steel, is required to keep our virtual world running smoothly. Could such new sources of demand – along with things like EV charging stations, wind towers and solar panels – one day rival the steel consumption of the roads and bridges we typically think of when we think of infrastructure?

That’s a question I’d like to see discussed more at SMU’s Steel Summit in August. Some major players in steel have told me they’ve already registered. You can too here.

By Michael Cowden,

Michael Cowden

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