Final Thoughts

Final Thoughts

Written by Michael Cowden

There was consensus that steel prices would crash on the UAW strike and then rebound just as sharply once the union and the “Big Three” automakers reached tentative deals.

What we’ve seen instead is that the strike didn’t have the impact on steel that some had feared. Take a look at some of the comments in “Market Chatter,” for example.

So prices didn’t collapse on the strike. And yet now they’re nonetheless soaring higher.

Case in point: There were volume deals available earlier this week for a little below $800 per ton ($40 per cwt), which is the lower end of our range. Now, mills are asking for $900 per ton for HRC and $1,100 per ton for cold-rolled and coated products.

What’s to stop them from getting it? Lead times are already into 2024 for cold-rolled and coated – and increasingly for HR as well. If you can find any spot tons for 2023, they won’t come cheap.

Yes, you might be able to get HRC from South Korea, which is subject to a Section 232 quota rather than a tariff. And the price might look good at, say, a little over $800 per ton. But that material might not arrive until March or April. Will that be a good price then?

These are the kinds of questions we’re used to asking. It’s not news that the steel industry is cyclical – and that the longer lead times associated with imports will always carry risks.

But the intensity of the cycles over the last three years, and the associated risk, still catches me by surprise. It’s not just magnitude of the price spikes but also when they’re happening.

We saw steel prices go from $645 per ton in early October to $810 per ton earlier this week – an increase of $165 per ton, or 26%, in just a month. Let’s say prices go to the $900 per ton US mills are seeking before the end of November, which almost feels conservative. That would be a gain of $255 per ton, or 40%. Perhaps HR hits $1,000 per ton, which is hardly uncharted territory anymore, sometime in December – that would be an increase of more 55%.

We saw something similar in the first quarter of this year. Prices surged from $695 per ton in early January to $1,145 per ton by the end of March – a gain of 65%.

That resulted from a confluence of factors that make sense in retrospect: People were too bearish about 2023 demand in Q4’22. New capacity struggled to go come online. Maintenance outages went forward as planned despite higher spot prices. And AHMSA unexpectedly stopped production. (When AHMSA might resume still isn’t clear.)

Also, it was the first quarter, when prices typically rise. But a gain of 40-50% or more in Q4 – a quarter that is typically one of the slower ones of the year? That’s not a pattern I’m used to.

Yes, prices rose 63% in Q4 2020 (from $605 to $985/ton). But there was a reason for that. Demand snapped back unexpectedly despite the pandemic still raging, catching everyone from mills to automakers to chip producers by surprise.

What explains it this time? Because it doesn’t seem like it’s the UAW strike ending.

To be clear, I’m not questioning that lead times are extended and that prices are up. It’s just unusual to see those trends happening across a backdrop of uneven macroeconomic data. Also, it’s hard to square the extreme volatility in sheet with the comparative stability in plate and rebar.

Frankly, it’s unusual to see one mill opening December order books for plate, while another is opening January order books for HRC. What gives? Plate was supposed to be stronger than sheet, in part thanks to infrastructure spending. Is the cancellation of some big offshore wind projects (check out this New York Times article on the matter) having an impact on the spot market for plate?

And while some of you tell me that labor is still tight, others say that you’re able to be a little more discerning now after basically hiring anyone with a pulse a 1-2 years ago.

So, again, I have a tough time squaring this short-term price jump with a still-murky Q1 outlook.

That said, I still remember when galv base used to carry a $100/ton premium to HRC. Now it’s taken for granted that the spread is $200/ton. What other old rules of thumb are no longer useful? And which still might yet come back to haunt us?

Let me know your thoughts.

Michael Cowden

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