Final Thoughts

Final thoughts

Written by Michael Cowden

Sheet prices have fallen again this week on shorter lead times, higher imports, and potentially higher inventories. (We’ll see for sure when we release our service center shipment and inventory data next week.)

I remember reporting almost exactly the same thing about a month ago and getting a fair amount of pushback. Not so much these days.

“I think last week people were finally acknowledging it,” one service center executive told me. “Most of the mills need orders and are doing whatever they have to.”

“I see the market as being about $40 (per hundredweight) in 4-5 weeks,” another source said, chalking it up to “a lack of enthusiasm” or “malaise” in sheet.

I realize that’s not true across the board. Some of you have noted that certain mills have been slow to come out of outages or upgrades, and continue to run late on orders – creating pockets of tightness, especially when it comes to certain coated products.

But for every person who points to that, another points out that imports were higher than anticipated in January – and for coated products in particular.

Case in point: the US was in January licensed to import 284,462 metric tons (mt) of galvanized and “other” metallic coated products (a category that includes Galvalume). That’s up 28% from 221,870 mt in December and marks the highest point for such imports since August 2022, according to Commerce Department figures.

Vietnam accounted for much of that increase, bringing in 47,457 mt of galvanized and “other” metallic coated products in January, up from only 1,956 mt in December. And buyer sources I spoke with today said they didn’t think January would be the last month of higher import volumes. They expect increases not only from Southeast Asia but from other regions as well.

Meanwhile, as Timna Tanners noted in a Community Chat last week, more domestic galvanized capacity will be ramping up this year.

The good news is that demand remains stable. That’s something I’ve been hearing anecdotally. We’ve seen that in our surveys for quite a while. And participants in SMU’s webinar with HARDI today noted stable demand as well.

The not so great news, depending on where you sit in the supply chain, is that you could be in for a period of squeezed margins. I realize some of you are sitting on a lot of steel you bought last fall with a seven (or even a six) handle on it. Kudos! But some of you are also getting delivery – and will through March – of material ordered at the end of the year, at what turned out to be the peak of the market.

There are some hopes that capacity, integrated capacity in particular, might be idled so that prices won’t fall too quickly. I’m not sure I see that happening. Take current scrap prices and add a (generous) $200 per short ton (st) for conversion costs. That gives you just over $600/st for breakeven. (I’m using short tons here instead of gross tons for apples-to-apples comparisons.)

In other words, even if prevailing HR prices fall to around $800/st, as many of you think they will, both integrated and EAF producers would still be making handsome profits. So why would anyone idle a blast furnace?

I think the question now is when buyers might come back into the market to restock, not just to fill holes. Or at what price point they think it’s worth coming in to make big, speculative buys. My personal opinion is that demand hasn’t changed, but customers are sitting on a fair amount of inventory (or soon will be because of how much they have on order). In other words, I don’t see a restock soon. But maybe we could see prices pop in Q2 if buyers have to restock before automotive shutdowns and the summer doldrums set in? What do you think?

SMU Steel Summit

Mark you calendars for Aug. 26-28, when SMU’s Steel Summit conference will be back at the Georgia International Convention Center (GICC) in Atlanta. We’ve got a strong agenda shaping up, and we’ll be sharing more of that with you soon.

In the meantime, I suggest booking your spot, and your discounted room block, before the GICC hotels sell out. This is a big event – nearly 1,500 attended last year – and rooms on the GICC campus go fast. You can register here.

Michael Cowden

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Final thoughts

Last week was a newsy one for the US sheet market. Nucor’s announcement that it would publish a weekly HR spot price was the talk of the town – whether that was in chatter among colleagues, at the Boy Scouts of America Metals Industry dinner, or in SMU’s latest market survey. Some think that it could Nucor's spot HR price could bring stability to notoriously volatile US sheet prices, according to SMU's latest steel market survey. Others think it’s too early to gauge its impact. And still others said they were leery of any attempt by producers to control prices.