Flack: 'Hedge your bets,' it's going to get bumpy

Jeremy Flack, founder and CEO of Flack Global Metals (FGM), has been touting hedging strategies for well over a decade. And though he believes the underlying mechanisms in hedging always remain the same, today’s craziness may be a good time to convince you to diversify.

I sat down with Flack on Monday to discuss the hot-button issues we’re all witnessing and experiencing.

(To get more of a flavor about FGM and its recent acquisitions, click on the link to his SMU Community Chat from October here.)

U.S. Steel deal

Ripped from the headlines, Flack said President Trump’s recent approval of Nippon’s bid for U.S. Steel was a “very positive thing for America.”

He said, “They’re keeping the business intact, adding to the platform, and investing tremendously in new technologies.”

On the robustness of the US industry in general, he commented, “We have the most modern, efficient steel industry in the world, and we have all the raw materials and energy infrastructure to make steel here.”

“We don’t want to hollow ourselves out like Europe did,” Flack added, referring to what he believes is overregulation there. “So I think this (the deal) is fantastic for America.”

Tariffs/USMCA

Of course, front and center in the American landscape is the tariff situation, with Section 232 tariffs recently raised from 25% to 50% and the reciprocal tariff situation still in flux.

Flack said that overall, the tariffs seem “to have put a damper on demand,” noting that demand appears to have dried up since the start of this administration.

What he’s seeing from clients is “they’re just buying a little bit for now” and that “the quantities, the commitments, have all become short-term in nature.”

“I think the only ones that are doing well are the steel mills,” Flack said. He pointed out that though demand hasn’t been great, “pricing certainly seems to be pretty strong, but at what cost to the downstream?”

Looking at the big picture, he sees the Trump administration as trying to wall off North America from steel imports. Of course, the other two partners in the USMCA agreement, Canada and Mexico, are also affected by US tariffs. It was reported last week that Mexico may be closing in on a trade deal with the US, and Flack views this as good news.

“Mexico seems to be leading the way on figuring out how we maybe recraft,” he said, pointing out the country is figuring out how to wall itself off from Chinese steel.

“I think if you could wall off the North American marketplace, maybe using a deal with Mexico as a paradigm for a larger deal about USMCA, maybe that’s what is going on here,” Flack continued. “Because it seems that the cross-border stuff here in North America is counterproductive.”

Beyond that, Flack believes a kind of tariff fatigue is setting in.

“I think the economy is starting to feel it, and certainly, with higher oil prices on the horizon, this is going to have to come to an end. It’s gonna start to get painful.”

Hedging/futures

Something Flack has always been vocal about has been steel futures and hedging. In this market, he still indicated that the “hedging mechanism always functions the same.”

Regarding futures, he said, “If you would have wanted to lock in your steel price this year, you could have locked in a $750 to $800 base for yourself for the entire year at certain points toward the end of last year.”

The futures market in steel is no different than the futures market in every other commodity, he continued. “It’s certainly been an effective tool for us. We wouldn’t be where we are today if we hadn’t been using that.”

In fact, he said, no matter what the market situation is, “There’s always an opportunity to de-risk your business with futures. And that’ll never change.”

Given this current unsteadiness in the market, could that lead to more acceptance in the traditionally hesitant steel industry?

“We’ve been pitching this stuff for 15 years, and through every cycle, there’s more adoption,” Flack said.

He said that during any disruption, “you see more and more volume, and then you see more parties interested in managing risk afterwards.”

“So it changes a few minds every single time. And if you look at the numbers, they are growing significantly on the exchange, year after year,” he added.

For those thinking that things will settle down, Flack warned: “They won’t.”

With our current geopolitical situation, the world is getting “hotter and hotter,” and “you don’t know what disruption is coming next.”

“And so we (FGM) just keep getting back to the same fundamentals,” Flack said, concluding with a piece of advice in the face of so much uncertainty: “Hedge your bets!”