Final Thoughts

Final Thoughts

Written by Michael Cowden

I didn’t see the Cleveland-Cliffs price increase coming on Wednesday. And I didn’t expect to see a target base price of $750 per ton ($37.50 per cwt) for hot-rolled coil.

But I’ve since heard that other mills, even if they hadn’t publicly announced anything, had been quietly raising prices before Cliffs publicized its increase.

Are they all targeting $750 per ton? Not necessarily. Are some trying to hold the line at $700 per ton? Yes.

It’s a similar thing when it comes to cold-rolled and coated base prices. Cliffs didn’t announce a target price for those products. But market contacts have told me some mills are now seeking base prices as high as $900-950 per ton.

Bears Say It Won’t Stick

Some of you are already telling me that none of this makes any sense. How can you increase HRC prices by ~$100 per ton in the face of a UAW strike – one that is set to expand as soon as tomorrow? (UAW president Shawn Fain will announce the union’s next steps on Friday at 9 a.m. ET on his preferred medium, Facebook Live.)

If the goal was to stabilize the market and get buyers off the sidelines, why not stop at up $100 per ton? Why not set a target of $1,500 per ton? In short, there is no shortage of cynicism about this increase and its chances of success.

But, again, it’s notable that other mills are following, even if they haven’t announced anything yet. And I don’t think it’s wise to brush off the increase as simply mill bluster and wishful thinking.

Bulls Say Strike Price Declines Already Baked In

I’ve spoken to market participants who said the price declines resulting from the UAW strike were already baked into the market – that in fact they’d been mostly baked in even before the strike began.

How does that make sense? Consider this: SMU’s galvanized base price hit a recent peak of $1,035 per ton in mid-July, following a round of price hikes announced by domestic mills in June. Prices have since fallen $170 per ton, or nearly 14.6%, since then, per our pricing tool.

SMU’s lead times for galvanized product have been roughly 6.5-7 weeks on average since then. In other words, prices started falling in July as lead times were pushing into September – the month when the strike began.

Our galvanized lead time now is approximately 6.5 weeks, which is in mid-November – just ahead of Thanksgiving. Also, keep in mind that that’s an average. Some mills are into December, and certain lines are booked out for the balance of the year.

I’d written before that mills had readied price increases of as much as $100 per ton. And that they would unleash them as soon as there was an inkling that the UAW strike might be resolved.

I’m not aware of any firm evidence that the strike will be over before the holidays. But some market participants seem to think lead times are now past the date when a deal (or at least a tentative agreement) might be in hand.

Will Prices Pop, or Pop and Then Drop Again?

As I’ve noted before, sheet inventories were lower in August and could move lower again in September. Meanwhile, imports have slipped. And they are likely to remain low for some time. That’s because most buyers haven’t been ordering foreign steel thanks to competitive US prices.

Domestic sheet prices don’t typically stay at parity or below prices abroad for long. Typically, US prices shoot above the rest of the world again. Are we about to see that liftoff?

I’ve talked to some mills who say they’ve seen a big increase in bookings – that buyers were already getting off the sidelines before the Cliffs increase, and that the company’s price increase only accelerated that trend.

But what happens if the UAW strike broadens to hit more assembly plants and extends past Thanksgiving? That would be beyond current coated lead times. In that case, could we see prices pop now and then drop again? (And if they did pop and drop, would the rebound only be sharper in Q1?)

Let me know your thoughts.

Steel 101: Oct. 24-25 in Charleston, S.C.

It’s no joke that space is limited for the SMU’s Steel 101 workshop. We can only take as many people as will fit on the bus for the tour of Nucor Steel Berkeley.

It’s a great experience. Students will learn about how steel is made in the morning of the first day, and then see (and feel the heat of) it being made in the afternoon. They’ll also get to network with each other and with SMU’s instructors.

Register here if you or someone you know is interested – before the seats on the bus are gone!

Michael Cowden

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