Final Thoughts

Final thoughts

Written by Michael Cowden

There seems to be bit of high-stakes chicken going on in the domestic sheet market.

Prices have been moving lower for most of the year, and our hot-rolled (HR) coil price on Tuesday fell below $1,000 per short ton (st) on average. Crossing that threshold does not seem to have resulted in a flurry of buying activity.

I’m not saying there is no business transacting at those numbers. Companies are of course buying as needed. But it doesn’t seem that big buyers are stepping into the market to restock. Why would they? Imports from a nation with high-quality steel might be available for Q2 delivery to the US in the mid/high $700s/st. And CME HRC futures are in the low $800s/st for March and throughout Q2.

Then there is the matter of lead times. They’ve also pulled back. One major steelmaker posted lead times on Tuesday. HR was about 4-5 weeks depending on the mill. Cold-rolled was roughly 6-7 weeks. And galv was around 5-7 weeks. These are not bad lead times by any stretch. Still, it’s notable that “time” is back in “lead time.” People know they can get steel in a reasonable timeframe if they want it.

Rewind to early October, and the same steelmaker had no dates listed in its published lead times – just about everything was “closed” or “inquire.” That probably wasn’t a coincidence. In late September, we saw HR prices fall into the $600s/st. Savvy buyers saw that US HR prices were at or below those in the rest of the world – a place domestic prices rarely stay for long.

They also realized that, despite the UAW strike, the downside risk to price was less than the upside risk. They, in addition, decided to get ahead of a potential price spike following the resolution of the strike. And so they loaded up on steel, which, along with fall maintenance outages, stretched out lead times and sent spot prices soaring higher in Q4.

What does it take to get buyers who can place 10,000 tons – or tens of thousands of tons – off the fence now? Is it something with an eight handle, a seven handle? Personally, I see it hard to see a six handle again with scrap more expensive now than last fall.

But as Timna Tanners noted in our Community Chat on Wednesday, it doesn’t make sense to shut capacity at current prices. Everyone is making money. (Laura Miller has a good writeup of the webinar here.)

So it seems more a question of how quickly or slowly it takes prices to find a new floor. And, to be clear, there almost certainly is a firm floor. Economic indicators are generally positive. Also, as we’ve noted many times before, most buyers continue to tell us that they’re meeting forecast and that demand is stable.

In other words, they’re still moving steel. How long can they wait for prices to go fall before they risk inventories getting uncomfortably low? And then how quickly will mills roll out price increases after big buyers re-enter the market and stretch out lead times?

If it seems like you’ve seen this movie before, you probably have. This is the kind of volatility that we’ve gotten used to in the US sheet market in the years since the pandemic. The magnitude of the price swings might have moderated a bit. But it still makes the volatility we saw before the pandemic look like child’s play.

SMU Community Chats

Nearly 700 people registered for the Community Chat on Wednesday with Wolfe Research Managing Director Timna Tanners. You can see a replay of the webinar here.

We’ve got another good chat coming up on Feb. 21 with Mercury Resources CEO Anton Posner. When Posner and I first discussed doing a webinar, I asked whether the Red Sea and the Panama Canal would still be issues by the time late February rolled around. Posner said they would be. He was not wrong. You can sign up for that one here.

In the meantime, thanks, everyone for your business and your continued support of SMU. We appreciate all of you!

Michael Cowden

Read more from Michael Cowden

Latest in Final Thoughts

Final thoughts

I’ve had discussions with some of you lately about where and when sheet prices might bottom. Some of you say that hot-rolled (HR) coil prices won’t fall below $800 per short ton (st). Others tell me that bigger buyers aren’t interested unless they can get something that starts with a six. Obviously a lot depends on whether we're talking 50 tons or 50,000 tons. I've even gotten some guff about how the drop in US prices is happening only because we’re talking about it happening.

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?