Final Thoughts

No, 2023 is not starting off with a big bang like 2021 did. We’re unlikely to see a market like early ’21 anytime soon. But it’s fair to say the market now is lot stronger than a year ago.

Recall early ’22 saw supply catch up with demand and then overshoot it. FOB mill prices were a lot higher then. But service centers were already slashing prices with abandon.

What’s also interesting is that the waves of mill price hikes that began after Thanksgiving have gained traction downstream in a way that a prior round of increases in August/September never did.

The big question: Does the current market have legs, or is it too early to say?

Lead times have been extending, which is a sign that the upswing is more than a cost push. That said, a mill might have a longer lead time in part because it’s operating at a lower capacity utilization rate.

A four-week lead time at 90% capacity utilization is a different beast than a four-week lead with utilization below 80%. And some sources have questioned whether demand supports prices continuing to rise, noting also that higher prices were in part the result of lower production levels from domestic mills.

That’s a fair point. But I wouldn’t place money on domestic mills cranking up production soon. For electric-arc furnace (EAF) mills, that would require going to the market for more scrap – which would drive scrap prices up higher still. And I can’t see integrated mills restarting idled blast furnaces – an expensive proposition – unless they are 100% sure long-term demand will be better.

Service Center Inventories

Ordinarily I’d suggest keeping a close eye on service center inventories. We’ll be releasing December figures to our premium members on Jan. 17. The problem with December is that it’s much more impacted by seasonality than other months.

Let’s say it turns out that sheet inventories popped over three months of supply in December 2022 from 2.62 months in November. Would it be time to freak out about demand disappointing in 2023?

No, not based on that data point alone. Inventories jumped above three months in December 2021 (from 2.85 months in November to 3.19 months at year end), and in December 2019 (from 2.66 months in November to 3.15 months at year end) as well.

The exception was December 2020, when inventories rose from 2.10 months in November to a mere 2.33 months at year end. That turned out to be among the early signs that prices were about to go berserk in the first half of 2021.

So why shouldn’t you get too worked up about December inventories? Basically, shipments slow in December because of the holidays, fewer shipping days, etc. But inventory doesn’t slow in tandem. That’s how I’d look at it. And then you might have had some buying ahead of increases this year, too, which could amplify those trends.

My advice? Wait until January results to jump to any conclusions based on service center inventories.

Tampa Steel Conference

Approximately 375 people are now registered to attend the Tampa Steel Conference, which SMU holds in conjunction with the Port of Tampa Bay, on Feb. 5-7.

That’s more than total attendance at the event last year, and that number is expected to rise because we typically see a last-minute surge in registrations.

Don’t miss out! You can learn more about the event, the agenda, networking opportunities, and register here.

PS – Our service center inventories report is a great reason to upgrade to a premium SMU membership. Contact Lindsey Fox at Lindsey@SteelMarketUpdate.com to learn more.

By Michael Cowden, Michael@SteelMarketUpdate.com