Final Thoughts

Final thoughts

Written by Michael Cowden

I’m writing these final thoughts from the JW Marriott in Tampa. And I’m looking forward to seeing some of you reading this in just a few hours at the opening networking reception of the Tampa Steel Conference.

Nearly 550 people will be there – a new record for the event. If you’re looking for things to talk about over a drink with a few hundred of your best friends in steel, today’s issue provides some good ideas.

Something to talk about

Want to talk about scrap? Check out Stephen Miller’s article about how the February scrap market might shape up after a messy settlement in January.

Want to talk trade policy politics? Check out Lewis Leibowitz’s article on a blanket 10% tariff on imports – all imports, not just steel and aluminum – floated by former and potentially future President Trump. Or take a look at the SMA’s thoughts on negotiations between the US and the EU on carbon emissions.

Want to talk about Nippon Steel’s $14.1 billion acquisition of U.S. Steel? Check out Laura Miller’s article – based on a lengthy SEC document – that offers a lot of detail (previously secret) on how the sale unfolded. Two things stuck out to me: (1) the process got underway way back in March 2023 and (2) Cleveland-Cliffs was much closer to buying U.S. Steel than might have been assumed.

Two (forecast) trains running

As for the outlook for the steel market and steel prices, I’m looking forward to seeing what leading analysts Josh Spoores (CRU), Timna Tanners (Wolfe Research), and Alex Hacking (Citi) will present on Monday afternoon at Tampa Steel.

Talking to some of you in recent days, I get the sense that there are two trains running when it come to steel market outlooks. On the one hand, there are those of you who think the recent retrenchment in hot-rolled (HR) coil prices might represent the beginning of a long, slow slide downward that could last for much of this year.

It goes something like this. Demand is stable, but supply is steadily increasing as new capacity continues to ramp up. Also, we could see higher import volumes over the next few months because US prices were very high compared to prices abroad in Q4, sparking more offshore buying. It’s not rocket science: steady demand plus more supply (both import and domestic) equals lower prices.

On the other hand, there are those of you who think the recent weakness in HR prices could prove temporary – and that it’s only a matter of time before prices bottom and rebound.

The thinking in that camp goes something like this. Service centers have been on the sidelines with domestic prices falling. They’re relying on their contract tons and buying only as needed from the spot market. Yes, it could be a long slog for mills to fill March order books, which could lead to further spot price declines. But it might be a different story once lead times get into April or May.

Why? For starters, import could drop in the spring. Overseas steel might appear to be competitively priced now. But those prices might now look so good when that material arrives. As David Schollaert reported on Thursday, the theoretical gap between domestic HR and foreign HR is now below $200 per short ton (st). That’s still a wide gap, but it’s down significantly from $300/st in mid-December – and that spread could continue to compress. Also, it’s not just that domestic prices are falling, so are domestic lead times – which makes the risks associated with longer lead times for overseas steel even greater.

Assuming demand holds up, service centers will need to restock. And, as often happens, US buyers tend to exit the market at the same time and to re-enter the market at the same time. Maybe big buyers are on the sidelines for now. Perhaps HR prices in the $900s/st aren’t enough to entice them back into the market. But maybe prices in the $800s/st would? Let’s say big buyers were to re-enter the market – creating a bottom and stretching out lead times again. Domestic mills might start rolling out price increases again in short order.

Saying exactly when that bottom might happen might be tricky. I’ve heard from some of you that imports expected to land in February-April have slipped into March-May because of supply chain snarls. That all flows back to a drought causing low water levels on the Panama Canal and fighting with Houthi rebels along the Red Sea. The latter has led to more vessels going around the Cape of Good Hope in Africa instead of transiting the Suez Canal, which adds at least two weeks to shipment times.

In other words, imports already on order might arrive late – which might keep domestic prices from falling fast but might also extend any down cycle. However, there might not be much import coming in after what’s already on the water. So perhaps a US spot price rebound happens in late spring instead of early spring?

We’ll see. I’m looking forward to hearing your thoughts. And I’m also looking forward to some of the good questions I know you’ll have for our speakers.

In the meantime, thanks to all of you for your business and your continued support of SMU

Michael Cowden

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Final thoughts

We’ve all heard a lot about mill “discipline” following a wave of consolidation over the last few years. That discipline is often evident when prices are rising, less so when they are falling. I remember hearing earlier this year that mills weren’t going to let hot-rolled (HR) coil prices fall below $1,000 per short ton (st). Then not below $900/st. Now, some of you tell me that HR prices in the mid/high-$800s are the “1-800 price” – widely available to regular spot buyers. So what comes next, and will mills “hold the line” in the $800s?