Final Thoughts

I say that because Bloomberg reports that the US and Mexico could ink a deal to eliminate Section 232 tariffs of 50% on steel from Mexico “up to a certain volume.” There will no doubt be more details to emerge in the days ahead.

This might be good, common-sense news if you’re a US mill that exports significant quantities of steel to Mexico. And it’s good news if your operations rely on closely interlinked cross-border supply chains.

It might be TACO Tuesday for US mills or OEMs without exposure to Mexico or those who were hoping for a more explicitly nationalistic domestic trade policy.

Momentum shifts

SMU had shifted its price momentum indicator from neutral to positive shortly before news broke of a potential deal with Mexico. We’re keeping it there. But let’s just say we’re feeling a little whiplash after hearing from a top Trump administration trade official in Washington, D.C., last week to expect “few” exemptions from the 50% tariff.

Even before the news about Mexico, I didn’t want to overstate the magnitude of the change in momentum. As far as we could tell, there hadn’t been a frenzy of new ordering following President Trump’s announcement of 50% Section 232 tariffs.

But higher tariffs had unquestionably raised prices for imports, which typically provide the floor for domestic pricing. We’d heard, for example, that prices below $800 per short ton for hot-rolled (HR) coil were gone from the domestic market – even for larger buyers.

We also know that some buyers have canceled orders and/or shifted business from imports to domestic mills. Could you get Vietnamese HR a little below $800/st? Probably. Is it worth the risk, given where domestic prices are and how US trade policy can change on a dime? Probably not.

US mills have, to date, been measured in pushing prices higher. Nucor, for example, kept list prices for HR unchanged last week, when the 50% 232 on imported steel officially went into effect. And the Charlotte, N.C.-based steelmaker increased its published price for HR by only $20/st this week.

A trip down memory lane

What might come next? To answer that, let’s take a trip down memory lane with the help of SMU’s price announcement calendar.

Let’s also remember that S232 at 50% is, in some respects, the sequel to a movie that began on Super Bowl Sunday. That’s when Trump said he would impose Section tariffs of 25% across the board, effectively eliminating preferential treatment for Canada, Mexico, and other traditional US allies.

The market reaction was swift. Nucor, on the Monday after the Super Bowl (Feb. 10), increased its list price for HR to $790/st, up $15/ton from $775/st a week earlier. By March 24, the company had stair-stepped prices up to $935/st – a gain of $160/st.

Other companies went up more quickly and more aggressively. Cleveland-Cliffs on Feb. 21 said it would seek $900/st for HR. Nucor at the time was still at $820/st. And on April 11, Cliffs said it was aiming for HR prices as high as $975/st.

SMU’s price assessment for HR never went that high. Take a look at our pricing records. SMU’s HR price stood at $725/st on average the week before the Super Bowl. And we peaked at $950/st on average in mid-March.

You could make a good case that we saw tariff headlines pull forward purchasing into February and March that would have otherwise taken place in April and May, which is why HR prices peaked when they did.

What comes next?

This time around, I wonder if tariffs going to 50% might pull forward into June orders that otherwise would have been placed in July or August. But who could blame buyers for doing that?

SMU will update its lead time data on Thursday. In the meantime, we’ve already seen published lead times for SDI extend at some mills well into July.

Likewise, we won’t update mill spot price negotiation rates until Thursday. I won’t be surprised if they are lower. Most mills had been willing to cut deals. Over the last week, domestic mills have become more confident of their position and more willing to hold the line on prices.

Also, while inventories aren’t low, they’re not high either, according to our service center inventory figures. SMU won’t have May data available until next Monday. However, our surveys indicate that most buyers have been maintaining or reducing their inventories in recent weeks and that almost no one has been restocking. Could that dynamic change?

The risks of too high, too fast

And while price increases have been modest to date, I wouldn’t be shocked if someone raised prices by a heftier $100/st or started fanning rumors about HR going to $1,000/st. Some of that chatter is already happening.

Which brings us to the inevitable question: Do US mills risk raising prices too high, too fast, and bringing imports back into the market? It’s hard to see Canada coming back into the market with a 50% tariff. And Canada coming back into the market contributed significantly to prices falling in 2019 after a S232 bump in 2018. But could Southeast Asian mills be competitive with a 50% tariff and US mills at $1,000/st? I think so.

The other question is whether demand supports significantly higher prices. That’s where some recent data points are not very encouraging. Iron ore cargoes are down, which is typically indicative of lower demand from integrated mills. US steel exports have fallen to their lowest point since April 2020 – the early, scary days of the pandemic. That wasn’t a good time for steel or much else.

And imports in April fell to their lowest levels in years for many products (before rebounding slightly in May). In the case of HR, we saw the lowest import volumes since 2009.

This is probably my 2009 PTSD speaking. But it’s worth pointing out that imports aren’t only indicative of unfair competition. They also reflect business activity. And so if you want to see a year with low imports, check out 2009.

A lot to (Community) Chat about

That said, an awful lot has changed in the years since. The US (and Mexico) have added new, more efficient domestic capacity. There is a legitimate debate to be had about whether the US needs imports in the same way it used to.

In fact, that will be one of the main themes of our Community Chat on Wednesday at 11 am ET with Timna Tanners. (If you’d like to tune in, you can register here.)

My question is whether that new capacity will be competitively priced. Because what happens to domestic OEMs if they have to compete with the most expensive steel (and aluminum) in the world?

In the meantime, though, it’s been a nice change of pace to write about something besides falling prices. We last adjusted our sheet momentum to higher on Jan. 28. And it remained there for approximately two months. Will it remain there for that long again?

A lot might depend on exceptions to S232 – whether you consider them common sense or TACO. To be honest, I’m not sure how to assess the news about a possible pact with Mexico, especially since a previously announced deal with the UK hasn’t been hammered out yet.

So, for now, all I can say is stay tuned. And I’m sure we’ll have a lot to talk about on the Community Chat tomorrow. Don’t forget to bring some good questions to the Q&A!