If you’re feeling whiplash from the current market, I’d take some comfort in the fact that you’re not alone.
I remember attending Great Designs in Steel, one of my favorite events, in Livonia, Mich., back in May 2018.
My absolute favorite part of GDIS is seeing the latest vehicle models dissected – and all the cool stuff people are doing with high strength steels.
I also like the chance if provides to ask folks in the trenches of the automotive sector how things are going. Recall that Section 232 was big, big news in the spring of 2018.
I asked an executive over lunch how his company was handling forecasting in a time of political and trade policy uncertainty, with Section 232 being a prime example.
He didn’t say anything. He shrugged, licked his fingers and made a motion like he was throwing a dart.
Let’s say you were to chart out HRC prices going back to 2007. (You can do that here.) You would see that Section 232 and the Great Financial Crisis – both huge events for the steel market – are mere road bumps compared to the spikes caused by the Covid-19 pandemic in 2020-21 and the war in Ukraine this year.
The latest development in the war, as it concerns the North American flat-rolled steel market, is increased tariffs on Russian pig iron, slabs and finished steel. That results from legislation signed into law by President Biden on Friday and that went into effect on Saturday. Lewis Leibowitz has a good analysis here.
What do Section 232 and increased tariffs on Russian goods have in common? That they were announced and took effect almost at the same time. The politics of it make sense. The US wants to be able to further pressure Russia – and to be able to do so quickly.
From a supply chain management perspective? This makes an already tall task even taller, especially if you rely on goods – whether ferrous, nonferrous or food – from Russia.
If I were to speak with that automotive executive again, I would ask about price forecasting. I would also ask whether his company was moving supply lines in response to global events.
I’m curious what his mimed response might be. Another throw of an imaginary dart, this time while blindfolded? Or a different gesture.
How can an automotive company, or any manufacturer, forecast in a world with so many variables, especially when they can change drastically in a matter of days or even hours? And how can a steel supplier rely on such forecasts knowing full well that they are inherently less reliable than in the past?
I think Ryerson president and CEO Eddie Lehner was onto something when he suggested keeping close tabs on lead times in our last Community Chat. Don’t go short, don’t go long – buy as needed based on current lead times.
I also recall Paolo Rocca, CEO of TechInt Group (the parent company of Ternium and Tenaris), saying at a World Steel Association event in Monterrey, Mexico, in October 2019 that “regionalism” – as evidenced by Section 232 and geopolitical turmoil – was here to stay, especially when it came to supply chains.
We have a different president and different trade policies in 2022. But Rocca was right. Regionalism is here to stay.
By Michael Cowden, Michael@SteelMarketUpdate.com
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I’ve had discussions with some of you lately about where and when sheet prices might bottom. Some of you say that hot-rolled (HR) coil prices won’t fall below $800 per short ton (st). Others tell me that bigger buyers aren’t interested unless they can get something that starts with a six. Obviously a lot depends on whether we're talking 50 tons or 50,000 tons. I've even gotten some guff about how the drop in US prices is happening only because we’re talking about it happening.
We’ve all heard a lot about mill “discipline” following a wave of consolidation over the last few years. That discipline is often evident when prices are rising, less so when they are falling. I remember hearing earlier this year that mills weren’t going to let hot-rolled (HR) coil prices fall below $1,000 per short ton (st). Then not below $900/st. Now, some of you tell me that HR prices in the mid/high-$800s are the “1-800 price” – widely available to regular spot buyers. So what comes next, and will mills “hold the line” in the $800s?
Everyone knows the old saying that “a picture is worth a thousand words.” Just because it’s a cliché doesn’t mean that it’s wrong. A lot of inked has been spilled trying to figure out why prices are falling now. I thought it might be as simple as this: Market dynamics in the fourth quarter (UAW strike, companies buying ahead of an anticipated post-strike price spike, etc.) pulled forward restocking activity that typically happens in the first quarter.
What a difference a month makes. There are a few full bulls left in the room, but their numbers are dwindling. We’ll release results of our full steel market survey tomorrow afternoon. I took a sneak peak at the data on Thursday. And more people than I expected think that US hot-rolled (HR) coil prices will be in the $700s per short ton (st) two months from now. Vanishingly few think prices will be above $1,000/st in mid-April.
Sheet prices have fallen again this week on shorter lead times, higher imports, and potentially higher inventories. (We’ll see for sure when we release our service center shipment and inventory data next week.) I remember reporting almost exactly the same thing about a month ago and getting a fair amount of pushback. Not so much these days.