Final Thoughts

Final Thoughts

Written by Michael Cowden

There is debate brewing about whether sheet prices will see a long, slow slide or whether they’ll fall off the proverbial cliff.

Some of you have told me you’re still trying to pass along costs for steel bought following the last round of mill price hikes. That’s not been an easy thing to do, especially with some early signs of demand moderating.

A rapid drop in prices would only make that tough task harder. So a plunge is not something many people want to see. It’s also not something we see evidence of this week.

gearsWe’ve been losing about $25 per ton per week since mid-April. That’s despite some big buyers seeing prices in the $800-900s per ton and despite imported cold-rolled, as we’ve noted before, being available for roughly the price of domestic hot band.

In other words, mills might be willing to sell large buyers at significantly lower numbers than what we’re publishing. But at this point, there seems to be no mad dash to drop prices for smaller spot buys.

A decline of $25 per ton per week over 4-5 weeks would have been a disaster before the pandemic, when four-digit hot band was a rare bird. It’s not so bad when you’re starting from nearly $1,200 per ton. That said, losing $25 per ton per week adds up to real money if you stretch it over 10-20 weeks.

We saw prices peak at $1,160 per ton on April 11. Let’s say prices continued to fall by $25 per ton per week for 10 weeks. That would put us at $910 per ton in mid/late June. If the streak extended for 20 weeks, we’d be at $660 per ton by late August.

I’m not saying that will happen. But it’s worth thinking about, especially given that steel prices in the rest of the world are so much lower than those in the US. It’s hard to see how that doesn’t exert more gravity over domestic prices in the months ahead.

And of course a lot can happen between now and late August. There remain questions, for example, about whether and when AHMSA will restart. A delayed restart there might support higher-than-expected sheet prices. There are also questions about how labor talks between the UAW and the Detroit-area automakers will pan out. A strike or lockout there could send prices much lower than expected.

Mostly, we’ve been getting questions about how far and how fast prices might fall. But we’ve started getting more lately about when sheet prices might rebound and how high they might go.

For every person who says we’ll revert back to a new, cost-plus normal, another says we’re instead in store for a long period of more violent price swings. That latter camp will tell you that mills will be leery of going back to the days of $20-40 per ton price increases when they’ve realized that they can instead go up $50-100 per ton when the stars align in their favor.

What might get us back to a scenario, like we saw in February, of big, rapid-fire mill price hikes? I realize that might seem like a big stretch with debt ceiling talks on the rocks, especially with macroeconomic indicators like the Empire State Manufacturing Index in negative territory. Still, let’s game it out for fun.

Let’s say there is no recession, or only a modest one. Let’s also assume that people run down inventories as prices are declining. Let’s assume, too, that we see a furnace idling or two in late summer or fall. Let’s then assume that, as often happens in steel, people who had been on the sidelines for months return to the market all at once at the first signs of prices increasing.

Could prices rebound in a big way late in late Q3 or Q4? I’m not saying it’s going to happen. But it’s worth thinking about.

SMU Community Chat

Speaking of price volatility, don’t miss our Community Chat on Wednesday, May 17, at 11 am ET with Flack Global Metals founder and CEO Jeremy Flack.

We’ll talk about why prices have been so bananas over the last three years and what strategies you might use to reduce the risk inherent in big price swings.

You can learn more and register here.

By Michael Cowden,

Michael Cowden

Read more from Michael Cowden

Latest in Final Thoughts