Final Thoughts

On the spot market side, we’ve seen some bigger buyers return to the market because they think prices are at or near a bottom. Their return might have the very short-term impact of pushing prices lower. But over the slightly longer term, it could give mills a baseload of business and more confidence to at least hold the line on prices.

There might also be pent-up demand thanks to contract resets. Let’s say you were able to negotiate only a measly CRU minus 2% in 2021, when mills had a strong hand, for your 2022 contract tons. This year, with mills in a weaker position, that figure might be CRU minus 5-6%. The result: Contract buyers know they can get a better price once lead times stretch into next year. They’re on the sidelines for now. But probably not for much longer.

Lead times should extend if bigger spot buyers are back in the market and if contract buyers return to the market too. Mills might be willing to risk a price hike if they’re not facing short lead times. And buyers, tired of seeing inventory values fall week over week, might also support a round of price increases.

So, back to timing. When it comes to hot rolled, lead times are still mostly in 2022: mid- to late December depending on the mill. But on cold-rolled and coated products, it’s late December/early January. Which means it’s just a few weeks before all products will be in 2023. That could be the catalyst for a round of price hikes.

I know some of you think it’s too early to talk about potential price hikes. “We’re still booking orders. Just at really (crumby) prices,” one mill source told me.

And demand is not good in some sectors. Take the residential construction market. Higher interest rates have hammered activity there. That means less demand from appliance and HVAC.

“I was buying steel because things were going well all through Q3. I was still nervous about having enough in Q4 – and now everyone’s forecasts are 30-50% lower,” said a service center source.

I don’t disagree. If there is a price hike, real demand – not just the timing of contract resets – will determine whether it sticks in full, in part, or just stops the slide for a little while. Keep in mind, too, that some mills are probably getting uncomfortably close to breakeven on HR. There is good reason for them not to go much lower.

Another interesting question is where cold-rolled and coated price settle now that HR has fallen back to pre-pandemic norms.

We’ve heard that with HR prices low, producers are trying to push as many tons as they can to more profitable downstream markets – whether that be cold-rolled, coated, or pipe and tube. We’ve also gotten some questions about whether that trend could compress the spread between HR prices and base prices for cold rolled and coated products.

Right now, that spread is $225-230 per ton. It was as high as $400 per ton earlier this year. And it was as low as $100 per ton in the summer of 2018. We asked in a survey question this week where that spread would settle. We gave survey respondents a slider bar between $100/ton and $400/ton to answer it. And the consensus was – drum roll, please – $221 per ton!

We’ll see in the New Year whether that was an accurate prediction. In the meantime, thanks for your business from all of us at SMU. We wish you and yours a Happy Thanksgiving.

PS – Our offices will be closed over the holidays. There will be no issue on Thanksgiving Day or on Sunday. We’ll resume our normal publication schedule next Tuesday.

By Michael Cowden, Michael@SteelMarketUpdate.com