Final Thoughts

Final thoughts

Written by Michael Cowden

Domestic prices have been sliding since the beginning of the year, and I don’t see any obvious reasons why the slide might stop this week.

But let’s put the timing of a bottom aside for a minute. The question among some of you seems to be whether we’ll see another price spike, or at least a “dead-cat bounce,” before the typical summer doldrums kick in.

Can outages move the needle again?

Some of you have brought to my attention approximately week-long planned maintenance outages at US EAF sheet mills slated for April or May. You also noted ongoing, but typically short, outages at integrated mills. Fall maintenance outages were partly responsible for the price spike that occurred last fall. Could spring maintenance outages play a similar role this year?

Maybe. But we’re in a market that has been mostly shaking off outages – planned or otherwise. Take the unplanned outage at Canadian flat-rolled steelmaker Algoma in January. In the past, that might have tightened up – or at least spooked the market – and kept prices from sliding. We didn’t see that this time.

Another example: There was a lot of talk last year about when Mexican flat-rolled steelmaker AHMSA might restart. It hasn’t. Yet the continued absence of an important steelmaker from the North American market does not seem to be making any waves. Perhaps it’s because newer capacity (SDI Sinton, for example) continues to ramp up and because expansions to existing capacity (North Star BlueScope, for example) are ongoing.

I also wouldn’t ignore the possibility of a slowdown in China, evidenced by sluggish iron ore prices despite supply disruptions. That could have impacts elsewhere. But I also know that, for most of you, that’s more of an abstract concern – especially if you’re continuing to see stable demand.

Stelco sees a price spike

Stable demand, combined with buyers on the sidelines, could lead to sheet a price spike – it’s just a question of when. That’s one school of thought. And Stelco CEO Alan Kestenbaum made the case for exactly that during the Canadian flat-rolled steelmaker’s earnings call last week.

“You get these rapid spikes followed by a rapid fall. The spikes are probably overstated, and the falls are overstated,” Kestenbaum said. “And what’s driving that is very, very definitively customer behavior.”

A lot of it has to do with import buying patterns, and Kestenbaum said customers probably aren’t buying much import now. “It’s about a six-month lead time. That’s not very attractive. It’s very risky, especially in a volatile pricing environment,” he said.

 “And so typically, what these buyers will do, they’ll wait. And what has happened now over the last two years is they wait till the last minute, and then they start buying all together,” he added.

Kestenbaum said that lack of buying, combined with a resilient economy, should set the groundwork for another spike. “Building is strong, oil and gas is strong, auto has been relatively stable. So all the end markets are there. Imports are going to start dropping because prices are falling, as it always does,” he said.

The likely result: “The buyers will come in rushing in all at once and start bidding up the price,” Kestenbaum predicted.

Yes, but back to timing

We’ve written about how the gap between foreign and domestic hot-rolled (HR) coil prices has narrowed. But the spread between domestic HR and domestic CR/galv remains wide (approximately $300 per short ton). And that between foreign and domestic tandem product prices is wider still.

Let’s use that six-month timeframe for imports as a rule of thumb. If that’s the case, US prices were high or rising into December. Does that mean imports will continue into June?

Also, I know some of don’t agree with the idea that price spikes are driven by buyers. You might say a more consolidated more domestic steel industry is just as responsible for those spikes – because North American mills now have more leverage to increase prices rapidly when the conditions are ripe to do so.

My guess is that will happen once big buyers come back into the market. That could initially lead to price indices falling, something that might keep buyers on the sidelines. The next move might be lead times stretching out despite prices at low levels – often the first sign of a recovery. Once that happens, I wouldn’t be surprised if we saw increases. But is that a late Q1 event, a Q2 thing, or not likely until lead times stretch past Labor Day?

Current events play a role too. We saw that two years ago when prices spiked after Russia invaded Ukraine in 2022. We saw it again last fall when the UAW strike distorted normal buying patterns. What black swans are you keeping an eye out for now?

I have my eye on a couple. But more on that it my next Final Thoughts. In the meantime, thanks to all of you for your continued support of SMU!

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Michael Cowden

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Final thoughts

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