Final Thoughts

A modest impact, so far

Case in point: SMU’s hot-rolled (HR) coil price increased to $845/st on average, up $5/st from last week. We’ve also changed our momentum indicator from lower to neutral.

A $5/st increase is such a small gain that I ordinarily wouldn’t read much into it. But it does mark a shift from the trend of flat or falling prices that we’ve seen since mid-March.

We’ve seen something similar unfold in the scrap market. The June trade was initially expected to be higher, then strong sideways, and then there were fears that the market could decline maybe $10-20 per gross ton (gt) on soft demand.

The announcement of 50% Section 232 tariffs didn’t send scrap prices soaring higher. But it might have contributed to the market settling sideways instead of falling.

A new market floor

I think there is an obvious case for sheet and plate prices going higher from here. That’s because, on a very basic level, the floor for flat-rolled steel prices, typically provided by imports, is now significantly higher than it was a week ago.

Let’s talk ballpark numbers. Say the lowest price for HR delivered to the Gulf Coast was approximately $700/st last week. And say that number this week might be roughly $800-900/st, depending on the country of origin.

So let’s assume HR imports are $850/st on average. (And I realize the actual number might be higher or lower depending on whether you’re bringing in material from Canada, Turkey, Vietnam, or somewhere else.) That would mean that domestic prices are now at the floor typically provided by imports. And in a normal market, domestic prices should only go up from there.

By the way, I stress that this is a theoretical exercise. There are some new import offers. But it’s also our understanding that many import offers have been pulled or orders canceled. If the material is on the water, the parties involved might be figuring out how to best divvy up the cost of the suddenly higher tariffs.

What about demand?

In any case, the question is how much steel prices might go up from here. And that gets us back to the thorny question of demand.

Look at the comments submitted by SMU subscribers in our survey this week. If there is a unifying theme, it’s that uncertainty around tariffs is keeping buyers on the sidelines. Meanwhile, there is little evidence of the onshoring that tariffs are supposed to encourage. (To be fair, you wouldn’t expect to see that yet.)

And, of course, it’s summer, when OEMs take seasonal downtime, and prices often dip as a result. So, at this point, while I expect prices to rise, I don’t anticipate seeing frenzied speculation about HR prices exceeding $1,000/st – which is what we saw ahead of Trump’s first overhaul of Section 232 in March.

That said, we saw prices soar over the summer of 2018 when Section 232 was unexpectedly applied to Canada and Mexico as well. Maybe we’ll see something like that again.

I have my doubts due to the increased complexity of the tariff regime this time. We’ve got Section 232s in effect or threatened against a much broader array of products. Then there are the reciprocal tariffs, which are scheduled to rise higher in July. And it all just seems to be moving a lot faster now than it did in 2018.

Maybe we shouldn’t be surprised

And on second thought, maybe we shouldn’t have been so surprised about Section 232 tariffs going to 50%. I wrote in March that some countries were probably happy to see that the 25% rate was applicable to everyone and that quotas had been eliminated.

Basically, if you were a mill previously subject to 25% – maybe in Egypt, Turkey, or Vietnam – nothing had changed for you. If you were Brazil or South Korea, there was no quota to hold you back. And you also faced less competition from traditional US allies such as Canada, Mexico, and the EU – for whom the 25% tariff was a big change.

There had been some thought ahead of Liberation Day that the Section 232 tariffs and the reciprocal tariffs would stack. Once it was clear that wasn’t the case, then a 50% Section 232 on imported steel probably became more likely.

And let’s not forget that we saw Trump on a random Friday in August 2018 increase Turkey’s Section 232 to 50% via tweet. (It was still Twitter back then.) So it’s not like this is without precedent.

The only certainty is uncertainty

As you might have noticed, I was at the American Iron and Steel Institute (AISI) annual conference in Washington, D.C., earlier this week. And I thought Sen. Elissa Slotkin (D-Mich.) had a good point. She said that she wasn’t anti-tariff; she just wasn’t pro-chaos. And she strongly suggested that automakers shared that point of view.

That echoes what we’re hearing from our survey respondents, who are predominantly steel consumers. What are the rules of the road? Will Trump cut a deal with another country – like he did with the UK – that might result in a lower 232 tariff? Or might he decide that 50% isn’t enough and that S232 needs to go to 200%?

It’s not so much that they’re against tariffs or against buying from domestic mills. It’s just that they don’t know what to expect from one week to the next. That might be good for the news business. It’s not so great if you’re trying to run a steady business making things out of steel.

But if there is one thing the steel market has gotten good at since 2020, it’s navigating the kind of volatility that would have been unthinkable a decade ago.

Next SMU Community Chat with Timna Tanners!

Don’t forget to register for the next SMU Community Chat on Wednesday, June 11, at 11 a.m. ET. You can do that here.

Our featured guest will be Timna Tanners, managing directly of equity research at Wolfe Research and one of the best-known steel analysts in the business.

Here’s a preview of our discussion: Start with a bucket of AD/CVDs, Section 232s, and other tariffs. Mix in Sheet Storm, Galv Galore, and Rebarmageddon. And the question that emerges is this: Does the US steel industry still need imports?

In the meantime, thanks to all of you for your continued support of SMU. We really do appreciate it.