Final thoughts

Will it stick?

Also, will the announcement raise prices or merely succeed in stabilizing them at high levels? I haven’t asked a question like that in a while because late last year prices went mostly nowhere but up. You know the story – people anticipated a price spike after the resolution of the UAW strike. So they bought ahead of that expected spike during the fall, a period that also coincided with significant mill maintenance outages.

I ask it now because some of the data we track has been mixed over the last month. That includes prices. HR has been roughly flat since mid-December. Cold rolled and coated prices kept rising into mid/late-December but have more recently slipped.

Another thing: I’ve heard that larger buyers, those ordering thousands of tons, could get prices in the mid/high $900s/st for HR. I’ve also heard that smaller buyers, those ordering hundreds of tons, were closer to $1,100/st mill list prices.

Were those deals in the $900s/st representative of the discounting that sometimes occurs shortly before an increase is announced? (You know, the big deals offered to a handful of buyers to stretch out lead times and put mills in a better position to enforce increases.) In that case, they might be out of the market soon. Or will three-figure HR prices become more prevalent in the market as prices in the $900s/st slowly trickle down to smaller buyers?

Lead times dip, other data mixed

Lead times contracted across the board this week. Is that something meaningful, a sign that supplies have improved as fall maintenance outages have concluded and as new capacity continues to ramp up? Or is it just a post-holiday lull, in which case we might see lead times rise later this month as buyers return to the market in earnest?

We’ve also seen a shift in the percentage of buyers who say mills are willing to negotiate lower prices. It’s not like September when nearly all mills were willing to negotiate lower. That said, buyers tell us that more mills are willing to negotiate now than they were in November – when prices were rising.

Another shift that has occurred just this week. CME HRC futures started off the week strong. They have since shifted lower. What changed in just a few days?

I can’t answer that for certain. But I think it’s worth considering whether we’re already seeing the impact of import competition. US HR remains much more expensive than foreign hot band. And import licenses were at a five-month high in December. Will that trend continue into January?

It’s possible. I’ve seen offers for foreign CR from Southeast Asia, including for material delivered into the Midwest, that are lower than domestic HR prices. That material might not arrive until late Q1 or early Q2. Such long lead times could deter US buyers. But in my experience, it’s not a bullish sign for domestic tags when foreign CR is cheaper than domestic HR.

Also, looping back to HR prices in the $900s/st. There might be another reason for that. Korean HR was offered to US buyers last month in the mid/high $900s/st. Our understanding is that offers could move lower this month. We haven’t seen anything in writing yet to say that with certainty.

Then there is simply the matter of timing. Rewind a year. HR prices bottomed in late November and peaked in mid-April. This year, HR prices bottomed in late September. Is it possible that the peak has been pulled forward two months as a result the UAW strike disrupting normal buying patterns – i.e., into mid-February?

Look, I’m not saying that everything is going to come crashing down. A 6+ week lead time for HR and a HR price of more than $1,000/st would have been a dream for any steelmaker in just about any year before 2021. Still, it’s worth considering whether the downside risk now is more than the upside risk. Just as in late September the upside risk was clearly greater than the risk of prices falling.

Tampa Steel Conference

It’s not too late to register for the Tampa Steel Conference. The event kicks off on Sunday, Jan. 28 at the JW Marriott Tampa Street. You can register here.

We’ve got a good group of speakers. You can find the agenda here. Some could prove to be very timely. I’m interested to hear, for example, what our logistics and trade panels have to say about escalating tensions in the Red Sea. Could disruptions there have an impact on steel, even if an indirect one?