Final Thoughts

Final Thoughts

Written by Michael Cowden

It feels like the market is in a bit of a holding pattern. Lead times are roughly sideways, according to our latest check of the market.

Will they begin to extend now that most mills are into September not only for cold-rolled and coated products but also for hot band?

That’s what we’d expect to see. It’s worth noting too that, despite all the gloom and doom in some quarters, the US economy keeps trucking along.

“The economy is strong. Everyone is busy. Everyone is making money. Everyone is spending.”

Midwestern service center executive

“The economy is strong. Everyone is busy. Everyone is making money. Everyone is spending – that’s why the Fed is having trouble slowing inflation,” one Midwestern service center executive told me.

He said, as others have, that his company had a strong July and expects to have a good August as well. Like other bigger service centers and distributors, he said his company has seen smaller service centers “begging” for tons over the summer.

UAW, to strike or not to strike?

But he’s not so sure whether the good times will roll into September. Why? Like some of you, he expressed concern about labor contract negotiations between the United Auto Workers (UAW) union and Ford, General Motors, and Stellantis.

Keep in mind that the UAW is negotiating with all three and not targeting just one as it typically does, and as it did in 2019, when it targeted GM. There was a 40-day strike then.  What happens this year when the current contract – which covers ~150,000 workers – expires on Sept. 14?

It reminds me of last year when some companies stocked more than they otherwise might have on fears of a potential United Steelworkers (USW) strike at union-represented mills in the US and Canada.

A USW strike or lockout would have squeezed supplies. When a strike didn’t happen, some buyers were left with more inventory than they might have wanted.

This time the scenario would be the opposite. Companies might be keeping inventories lower than they ordinarily would on fears a UAW strike could send prices lower. A deal, if one is reached, could leave them with less inventory than they might need.

Discounting, still with us?

Another concern as lead times move further into September: Some of you have noted that we continue to see big discounts being offered to large buyers. We’ve heard under $800 per ton for large but repeatable spot buys – approximately 1,000-5,000 tons. Let’s say $760-780 per ton, or around the low end of SMU’s price range for HRC.

What’s causing some consternation is pricing being offered in the low $700s per ton – maybe in the high $600s per ton? – for buyers able to place orders for tens of thousands of tons. Do those discounts start to leave the market as HR lead times stretch further into September? Or will they become the prevailing price on a lag – as sometimes happens in a falling market? (Caveat: I know some of you big buyers say it’s just as frustrating to at times see smaller buyers getting the same prices as you, or perhaps even lower ones, because of, for example, a good relationship with a sales manager.)

Also, how many tons were placed at low numbers? And did that effectively pull forward into the summer orders that otherwise would have been placed in the fall?

Some of you have told me that the market will probably weaken in the fall on some of the concerns noted above. Others contend that the market has been climbing a wall of worry – over strikes, over high interest rates, over recession fears – for months. Maybe for a year or more. A few in that latter camp think a price increase might be in the cards.

I’d be surprised to see a price hike. But I was also surprised when U.S. Steel announced a price increase in mid-June, apparently on the heels of stronger automotive demand. Is there anything like that that might surprise to the upside now? Or will sheet prices continue to drift lower?

Let me know what you think!

SMU Steel Summit

SMU Steel Summit is less than three weeks away. The biggest flat-rolled steel event in North America kicks off on Monday, Aug. 21, and runs through Wednesday afternoon, Aug. 23, at the Georgia International Convention Center (GICC) in Atlanta.

More than 1,200 people have already registered. You can join them by registering here.

Think of it this way: You could spread out meetings with clients across multiple weeks and multiple trips. Or you could meet with everyone all at once at Steel Summit.

I often tout the quality of the agenda. I should also point out that we leave more time for networking than most industry conferences. And with so many people staying on the GICC campus, that networking continues at the hotel bars and lobbies well after the conference programming concludes.

So, come to learn. Stay for the networking and fun!

Michael Cowden

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