Final Thoughts

Remember the debate about whether HR could exceed $2,000/st in 2021? This time the discussion seems to center on whether HR prices can hit a grand in a market where demand is uneven and where political pressure might be a factor.

I think the Nucor earnings call provided a good snapshot of demand. Company Chair and CEO Leon Topalian highlighted how less traditional markets like data centers and the border fence/wall have boomed even as more traditional markets like construction and automotive lag. (Topalian pinned the latter in part on higher interest rates.)

If you’ve got work tied to a border project or a data center, you’re probably feeling great. If you’re tied to more consumer-driven markets, perhaps not so much.

But as Timna Tanners, managing director of equity research at Wells Fargo, noted during her Community Chat in December, you can have a “demandless” recovery thanks to low imports and low inventories – even if that’s not a storyline anyone really loves.

Walking on (frozen) rivers

As best as I can tell, the supply situation isn’t getting any better. Import volumes are still low. And a prolonged bout of cold weather is freezing not only roads but also rivers. Take this headline from The Pittsburgh Tribune-Review about a local man leading police on a slow, miles-long pursuit – not along a highway but along a frozen Allegheny River.

Pittsburgh Man (sorry, Florida Man), who had done several stints in prison, wasn’t eager to go behind bars again. He told police he’d walk “all the way to Mississippi” first. (Spoiler alert: He didn’t make it that far. He was also walking the wrong way.)

Now imagine you’re trying to push a barge along a frozen river system. It’s not unusual for the Great Lakes to freeze this time of year. That’s why shipping season temporarily closes. But the Three Rivers? That doesn’t happen very often.

I’ve said before this isn’t a repeat of “Snowmageddon” in 2021. Demand now isn’t as strong as it was then. Also, I’m still not aware of any major unplanned outages, even if we continue to hear of smaller ones.

That said, talk of frozen waterways makes me think back a little further, to the “polar vortex” of 2013-14. Back then, unprecedented ice coverage forced some integrated mills to idle because they couldn’t ship pellets across the Great Lakes to their furnaces. To be clear, I’m not predicting we’ll see any vessels pierced by icebergs this time. (Yes, that happened in 2013-14.) But let’s say you’re counting on a shipment of slabs on a river barge. It might take a little longer than expected to arrive.

Raw mats up and lead times extending

On the raw materials side, pig iron prices are up. Scrap, meanwhile, is likely to move higher next month (or at the very least sideways). It’s cliche to say scrap goes up in winter because of the cold. But sometimes the cliche is true. And the expectation is mills will glom onto any increases in raw materials prices as a reason to move finished steel prices higher.

Also, have you seen published mill lead times? There is a lot of “closed” or “inquire” when it comes to HR. In some cases, it might be because of strong demand. In others, it might be because of production issues. Heck, it can be a little of both. The point is, we’re increasingly hearing that certain mills are not offering spot tons or holding customers to their contract minimums. And so getting HR in Q1 might not be as easy as some buyers thought it would be.

I’m not saying prices are going to explode higher. You could say that Nucor increasing prices by only $5/st this week is weak tea – especially compared to the triple-digit prices increases we’ve seen in past upcycles. Big price hikes are sometimes merited by fundamentals. Sometimes they’re designed more to shock the market, to change momentum – and mills don’t really expect to get all of the announced amount.

Does no spike mean no crash?

What’s been so notable about this price cycle is it’s been a slow grind higher. No shock and awe here. More a boa constrictor slowly tightening. A frog in boiling water. (Pick a metaphor. Yours is probably better than mine.) And maybe that’s by design.

The US market tends to rocket above prices in the rest of the world. Then imports come in, and domestic prices crash back to earth. I’m sure all of you are familiar with that cycle. Maybe certain US mills are aiming for just what we’re seeing? Gradual increases to reduce the chances of another precipitous crash.

If you look at the latest market chatter, you’ll see a fair number of people don’t believe this rally will last, especially if their companies are seeing weak demand. In fact, in our last survey (the one dated Jan. 23, see slide 30), only 22% or respondents saw prices rising above $1,000/st by the end of the quarter.

But why couldn’t they, especially if imports remain limited, if raw material prices continue to inch up, and if lead times continue to push out? We’ve also heard certain larger service centers, some of which keep inventories lean by design, are reaching out to other service centers for tons. That could be another sign of a market that’s shaping up to be tighter than expected.

We’re almost there

I think most people by now have gotten used to the idea prices can inch up, even if demand isn’t great. What happens if demand surprises to the upside? I’m not saying it will. But it’s something worth thinking about.

As for hot band at a grand, the high end of SMU’s HR price range is already $980/st. And the floor keeps rising. This week, as best as we could tell, even “big tons” (think thousands) didn’t seem to be available for less than $940/st.

In other words, we’re almost at $1,000 already. When exactly might we get there? And how long could HR price at or above $1,000/st last? We might see soon enough.

Tampa Steel Conference

You knew there was going to be a segue to the Tampa Steel Conference, right?

I don’t know whether/when we’ll see hot band at a grand. And so I’m curious to hear forecasts from the analysts who will be speaking at Tampa. We’ll be hearing not only from Timna but also from Alex Hacking, an equity research analyst at Citi, and Josh Spoores, a research principal at CRU, SMU’s parent company.

We’ve also heard your feedback. And we’ve given each more time to present their views and more time to take your questions. You can see when they’re presenting in the agenda here.

Nearly 550 people have already registered for Tampa Steel, just shy of last year’s record attendance. There is still time to get out of this insane cold and join us in Florida on Feb. 11-13. Register here!