Final Thoughts

Final Thoughts

Written by Michael Cowden

We were close to peak steel prices this time a year ago. Are we now close to peak pessimism?

Your answer to that question might depend on whether you’re working at a steel mill or at a service center.

Michael Cowden

We’ve noticed a big split in sentiment lately. Roughly 40% of respondents to our surveys – many more of them from service centers than from mills – continue to report decreasing demand.

What do mills say about trends like that?

Steel Dynamics Inc. president and CEO Mark Millett said demand was “healthy” and called out “pessimistic emotion” in comments released with the steelmaker’s second quarter earnings results.

Nucor executive Al Behr made similar comments during the company’s earnings call today: “The sentiment around that (service center) part of the market is perhaps more pessimistic than what reality is.”

I asked one executive at a service center and another at a mill to weigh in on these two very different realities.

“It’s scary times. We don’t know where the bottom is,” the Midwest service center told me. Lead times and prices keep moving lower – not just from one or two regional mills – but from major mills across Canada, the US, and Mexico.

It’s a sad state of affairs when your best hope for reversing those trends is a strike, lockout, extended outage, or idling. Mills talk about supply discipline. But it’s harder to maintain that when prices are falling, and especially so when everyone is still profitable, he said.

SMU’s HRC price is $875 per ton ($43.75 per cwt). That’s 41% below a post-Ukraine war high of $1,480 per ton in mid/late April but still well above historic norms.

“We’d love to see it stop now. Our inventory devalues every day, and we’ve got plenty of it,” the service center executive said. “But the demand really isn’t there. You’ve got little upticks, and then the market falls down again.”

Maybe there will be furnace idlings – and soon? So far those rumors have not panned out.

Yes, US Steel will take down a blast furnace at its Edgar Thomson plant in September for planned maintenance. That’s not the same as an idling. Does it become an extended outage or an idling if demand doesn’t improve? Time will tell.

If you talk to a mill executive, one thing you probably won’t hear much about is concern over demand. Are prices lower? Yes, and a lot lower than what SMU is publishing for big orders. Is activity falling off cliff? No.

“Inventories are still low, and customers still need their steel – so I am not that concerned about that aspect of it,” one mill executive told me. “Demand is not as people want it to be. But that is mostly a supply-side thing.”

He chalked the supply glut up in large part to imports. Customers ordered foreign steel when prices surged following the war in Ukraine. That swift ~$500-per-ton gain over about six weeks in March/April turned out to be a head fake.

But it was too late by the time people realized that. The steel had already been ordered and was on its way. That material has arrived over the last few weeks at domestic ports or soon will – perhaps at prices higher than current domestic mill offerings, he added.

The mill executive also noted that lead times had been roughly flat over the last week, potentially a change from the consistent declines we’ve seen for the last few months.

I’m not sure where to come down on this one. I think it’s safe to say this: We’ve seen hot-rolled coil price declines of approximately $50 per ton per week since about mid-April. If that trend were to continue for another month, we’d be in the $600s per ton when our Steel Summit conference kicks off.

Would that mean that the new lows are higher than the ~$400-per-ton lows we’ve seen in the past? Or would it mean that we’re back to the realm of “normal” pricing that we weren’t supposed to see again after waves of consolidation and a pandemic?

By Michael Cowden,

Michael Cowden

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