Final Thoughts

Final Thoughts

Written by Michael Cowden


There has been a broad consensus that wherever the current market bottoms will be higher than pre-pandemic norms. But as our latest survey results indicate, estimates of where that bottom is keep moving lower.

About half of respondents to our latest survey think prices will be $800-899 per ton two months from now. In late June about a half predicted they would be $900-999 per ton in roughly the same timeframe.

Michael Cowden

Will the consensus two weeks from now be less than $800 per ton? It doesn’t look like it at the moment. Only 4% of respondents think that prices will be below that threshold come early September.

There is some logic there. Prices usually drop off in the summer as activity slows with extended vacations, model year changeovers, etc. Then buying typically ramps up again heading into the third quarter. I wouldn’t be shocked if we saw an uptick in buying next week given current lead times and vacations centered around the long July 4th weekend.

So where might that buying happen? We appear to be back in a cost-plus market environment. So a lot hinges on where scrap prices land. I’m not going to guess where that is. Let’s just take futures prices. It’s an imperfect indicator, but it at least gives us a common point of reference.

CME busheling scrap futures for July were at $485 per gross ton when this article was filed. Then let’s add $400 per short ton for conversion costs and profit. That indicates prices will dip into the $800s per ton but provides no reason to think they will fall below that.

So let’s call that the “it’s just summer” bottom.

Now let me play devil’s advocate and ask what if this is more than just typical seasonality. If prices were to drop below $800 per ton two months from now, why might that be?

I could go through the usual considerations: inflation, potential recession, the chip shortage limiting auto output, labor shortages and inflation weighing on construction. We all know the contours of those arguments.

What gets talked about a little less often is what’s going on in Europe. We tend to think of Europe – especially mills in northern Europe – as being higher cost and not much of a threat in terms of imports. But might that calculus be changing?

The US dollar and the euro are near parity. That is a game changer.

I recently heard some numbers for import offers into Europe – for HRC from India (with boron) – at what to US eyes seemed like really low numbers. The HR numbers I saw were in the mid-€700s per ton. (Or about $750 per ton.)  And then I had to remind myself to take off roughly 10% to convert metric tonnes to short tons – which takes the price below $700 per ton.

That would have been a good price by pre-pandemic “normal” standards. It’s not a number we were supposed to see again in a post-pandemic world.

We heard some chatter this week about prices out of Mexico and/or south Texas around or slightly below $900 per short ton. Let’s just say that if those numbers in Europe aren’t outliers, people shouldn’t get too worked up about lower prices around the US/Mexico border.

When I asked around about why prices in Europe were so low, the answers were what you would think they might be. It’s hard to settle on where prices are because there just isn’t much activity. Service centers have enough inventory, business is slowing down – and some buyers aren’t inclined to buy at any price.

Mills or traders might send out lower quotes to try to get a sense of where the market is. If that works, you get an order. If it doesn’t, you drive down the price with new, lower offers – and still customers won’t buy. That’s not a situation anyone wants to be in.

We’re probably never going to see a repeat of last summer – with HRC nearing $2,000 per ton just because the market would bear it. Let’s in the meantime hope that cost-plus and a post-vacation uptick in activity win the day.

In short, let’s hope we see an “it’s just summer” bottom and not a “Europe is in trouble” one.

By Michael Cowden, Michael@SteelMarketUpdate.com

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