Final Thoughts

Written by Michael Cowden

What should we make of Cleveland-Cliffs’ price increase, and will it stick? We’ve asked some of you to weigh in on that, and we’ll publish your feedback on Thursday.

Here is some initial reaction I’ve received in the meantime.

Some market contacts stress that a spot price increase from a company not heavily involved in the spot market is not as meaningful as a price hike from one more invested in spot activity.

And for every person who tells me they are shocked to see yet another price increase, there is another who shrugs it off.

gearsWhy are some people shrugging off the increase?

They might note that the spot market has been quiet. That’s supported by our most recent survey results (see March 29, slide 23), which indicate that there are more people on the sidelines now than at any time since early in the fourth quarter – before the current upcycle got under way.

Others note that new capacity is finally ramping up and will be sending more tons into the spot market. Perhaps you’ve received a call recently from one of those mills for the first time in a while.

And still others point to worrisome big-picture trends – high interest rates, the fallout from the banking crisis, etc.

But while the market might show some signs of cracking, it’s worth considering that it could be surprisingly resilient in the short term.

Our survey, for example, showed few mills willing to negotiate lower prices.

Yes, I know some of you have told me that you’ve seen your local mills slightly more willing to negotiate as of late. And that’s a trend to keep an eye out for. But for every person who tells me that, another says their local mill has told them to pound sand when asked for a discount that could be measured in quarters (per cwt).

In other words, good luck finding a mill willing to go much below their published target price for HRC. That’s $1,150 per ton at several producers. At Cliffs, that figure was $1,200 per ton. And we’d heard that the company had been starting to inch prices above the $1,200/ton threshold even before the Monday increase was announced.

As I noted in a prior Final Thoughts, one southern EAF received a big HRC order from a large pipe and tube producer. That extended its lead times well into the summer months. Speaking of pipe and tube, it’s hard to see how the US rig count doesn’t go up with OPEC deciding to limit production.

Keep in mind, too, that a quiet spot market doesn’t mean the contract market isn’t busy. Are people swamped like they might have been earlier this year? No, and so they might not be in the spot market as much as they were then. Are they still busy? Yes, and perhaps ordering as much as they can under contract to keep pace.

Let’s not be naive, the huge gap between US and foreign prices, coupled with extended domestic lead times, is an invitation to buy steel from overseas. Even inland steel consumers who don’t normally play in the import market have told me that they’ve placed significant foreign buys lately.

Case in point: I’ve heard that galvanized material from East Asia is available for July/August delivery up the Ohio River for less than current domestic hot-rolled coil prices.

So I can see why some of you are convinced that this market is about to cycle downward. But it didn’t happen this week. And it’s best to have a backup plan if it doesn’t cycle down next week, either.

PS – If you’re looking for a good forecast for the balance of the year, tune into our Community Chat webinar on Wednesday at 11 am ET with CRU principal analysts Josh Spoores. You can learn more about the event and register here.

By Michael Cowden,

Michael Cowden

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