Final Thoughts

Final Thoughts

Written by Michael Cowden

Hot-rolled coil lead times have been bouncing around four weeks on average since July. HRC prices over that time have fallen from $955 per ton ($47.75 per cwt) to $630 per ton as of last week, a 34% decline.

The question now is whether we bottom out around $600 per ton. Will sheet prices and lead times rebound, or at least inch up from where they are now, as we get closer to the New Year?


Spreads and a New Survey Question

Some mills insist they will go no lower than $600/ton. But could we slide below that threshold before lead times move into January? Also, with HRC prices back to pre-pandemic norms, where will cold-rolled and galvanized base prices settle?

I ask that because spreads between HRC and CRC/galv base prices were $220-250 per ton when we updated pricing last week. That’s down significantly from $395-400 per ton in mid/late April at the height of the Ukraine war panic. But it’s still up from $195 per ton at the tippy top of the market in September 2021, according to SMU’s interactive pricing tool.

You read that right. HRC prices have might have fallen more than threefold since peaking at $1,955 per ton in September ‘21. But the spread between hot band prices and base prices for value-added products has increased $25-55 per ton.

Recall that spreads between HRC and base prices for value-added products were approximately $100 per ton in the summer of 2018, a period of strong pricing following the implementation of Section 232 tariffs and quotas.

What is the “new” normal: Are spreads of ~$200/250 per ton between HR and CR/coated base price a permanent feature of the market? Or do we revert to pre-pandemic norms?

We’ve added a new question to our Steel Market Survey to start to address the matter of spreads. You can help us solve that puzzle by responding to our survey on Monday or Tuesday. We don’t usually say this. But please respond as early as you can. That way, we can have the results ready to serve to you on Wednesday ahead of Thanksgiving.

The Week That Was

It’s come to our attention that some of you read our Sunday issue closely but don’t pay much attention to our newsletters on Tuesday or Thursday. If you missed Thursday, here are three highlights from that issue:

• Our latest comparison of HRC prices in the US to those in Asia and Europe. US prices are in theory cheaper than the landed price of imports. In past years, that has foreshadowed a rebound in domestic prices. Will it this time?

• Our coverage of HRC and scrap futures markets. The takeaway: “Even as participants expect the spot to continue to move lower in the near term, they have buoyed the forward curve in Cal’23. The first half of 2023 months are up an average of $40/ST over the last three Wednesdays. … Not only has the forward curve shifted higher but the contango in Cal’23 is steeper”

• The launch of the Global Steel Climate Council (GSCC) – which includes leading steelmakers like Nucor, SDI and Spain’s Celsa – might seem removed from day-to-day business. But remember that the US and the EU in 2021 agreed to come up with a common set of rules on carbon emissions in the steel and aluminum industries. (It was part of the deal to ease Section 232 on Europe.) They committed to reaching a deal on carbon by 2024. That’s not that far away

Big Picture

The column by veteran trade attorney Lewis Leibowitz is often one of the most-read items in our Sunday issue. He has a knack for breaking down complex subjects into terms that ordinary folks like me can understand.

His column today reminds me of a tour of the Port of Hamburg I did back in 2018. I interviewed port officials then on record about the news of day: Trump and Section 232. (I was also struck by how automated Hamburg was compared to some US ports.)

After the on-record interviews were over, talk drifted toward the bigger picture: disaffection among many US voters, especially when it came to the status quo in international trade. The Port of Hamburg folks reasoned that Germany might have blunted the economic pain suffered by US workers in part because of accessible and affordable trade schools.

Let’s say you lost your job or had a low-paying service sector job. You might not have many good options in the US. In Germany, in contrast, they said, you could learn to be a crane operator at the port without having to do mounds of paperwork or incurring massive debts. It might have been easier in 2018 to make such claims. The looming recession in Europe will test some of them.

In any case, that trip left me with the impression that government funding of affordable, relevant vocational education might really help in the US. Another thing Lewis mentioned was people finding themselves stuck in places without much economic opportunity. Capital moves a lot faster than people. It’s hard to change that fact.

It’s also hard to see our gridlocked politics coming up with many novel solutions to address that basic problem. Still, it’s nice to imagine an alternate universe in which people could receive assistance to move to places with more jobs. Imagine Democrats agreeing to retrain Rust Belt workers to move for opportunities Texas. Or Republicans not deriding such measures as welfare. But I digress.

SMU Events

SMU covers futures every Thursday because they are an increasingly important part of the domestic steel market. You can learn more about steel and scrap futures, and how they can help your company, with our Introduction to Steel Hedging training course. Our next course is next week, Nov. 30 – Dec. 1. It’s virtual. So no need to arrange last-minute travel. Registration is here.

As the calendar gets closer to 2023, don’t forget to put the Tampa Steel Conference on your calendar. That one is in person on Feb. 5-7. You can see the latest agenda and register to attend here.

By Michael Cowden,

Michael Cowden

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