Final thoughts

I don’t agree with that last point. Scrap prices have been wobbly, sheet lead times have come in, and global prices were bound to (eventually) exert some gravity on US prices whether SMU wrote it or not. But I digress.

Then there is the question of when. Some of you tell me that prices will find a floor before Q1 is over. Others don’t think we’ll find one until June. And still others think the market will bottom, rebound, and then cycle down again as the summer doldrums approach.

I think a lot might hinge on when import volumes peak and begin to recede.

Here is one way to quantify it: The US imported 832,063 metric tons (mt) of flat-rolled steel in January (the highest figure since last June), or 26,841 mt per day. So far for this month, the US was licensed to import 507,357 mt, according to government figures last updated on Feb. 19. That amounts to 26,703 mt per day – roughly on par with January import volumes. When does that figure start to go down?

I’m guessing people ordered a lot on the import side in September and October, when they also ordered a lot from domestic mills. And the material ordered then explains why January and February import levels are high. Did big import buys continue into November and December as domestic prices rose? Or did they taper off along with domestic spot activity?

If you (correctly) expected that US prices and lead times were going to shoot higher last fall, it was a no brainer to order imports. Now, that calculation is a little less obvious. Case in point: Check out David Schollaert’s article on the spread between foreign and domestic HR prices. That spread is only $77/st now on average, down from nearly $300/st just last month.

Lead times are also a big hurdle for imports now. Import lead times are measured in months. Last fall, so were domestic lead times for cold-rolled and coated products. That’s no longer the case. You can order from domestic mills these days for a competitive price and a reasonable lead time.

My guess is that imports taper off faster than expected as US prices fall quicker than might have been anticipated. So count me in the camp that thinks domestic prices will drop, pop, and then cycle down again with the summer doldrums. Especially if demand remains stable, which most of the people we hear from say remains the case.

But I’m a little less sure on the demand side than I used to be. I’m hearing from some of you that higher interest rates are finally starting to bite. We’ve written a lot about CME HRC futures falling. And it’s not just steel that’s seeing prices drop on futures markets – just check out soy and corn. That’s not a great sign for agricultural equipment.

That’s not the only thing that caught my attention. Phil Hoffman has a good column today on the weak Japanese yen hurting the West Coast scrap export market. Japan has, as has been widely reported, tipped into recession. It has also fallen from the world’s third-largest economy to its fourth largest – behind the US, China, and Germany.

Meanwhile, iron ore prices have been weak after Chinese New Year. (We’ll have more on that in our next issue.) That’s not a great signal from the world’s second-largest economy. But maybe the US economy is a juggernaut big enough to shake it off. Or it’s got a fast enough car to get outta troubles abroad. (Auto sales were really strong in 2023.) We’ll see!

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