Final Thoughts

Service center inventories are getting tight

We’ll send out February service center inventory data to our premium subscribers on Monday. I have seen the preliminary data. I’m not going to provide specific numbers here. But let’s just say the trend of lower sheet inventories we saw for most of last year looks set to continue into February. (We’ll release March data in mid-April.)

Let’s start with some (recent) historical context. If you have a premium subscription, you can follow along here. (If you’d like to upgrade from executive to premium so you can explore the data yourself, please contact us at smu@crugroup.com.)

You’ll see that service center sheet inventories haven’t been a straight line downward. December 2025, for example, (about 61.1 days of supply of sheet supply) was significantly higher than November of last year (about 51 days of supply). Why? In short, there is noise in the data around year-end holidays.

That said, last December was the lowest December total we’ve recorded since December 2020 (about 51.3 days of supply). And January 2026 (58.5 days of supply) marked the lowest January total since January 2023 (52.9 days of supply).

Fwiw, our steel market survey, which we release to premium subscribers every other week, is often a good advance indicator of where the monthly service center figures will land. And if you’ve been following that data (see slide 45 here), you’ll see most steel buyers have been maintaining inventories. We’ve seen a few building stocks, but that’s partially offset by the number of companies that have been, a little to my surprise, reducing inventories.

In other words, while it’s early to say it with any great degree of confidence, I wouldn’t be surprised if March inventories continue to trend lower.

Lead times aren’t getting any shorter

Meanwhile, lead times remain extended. I’ve said before it’s not as tight as 1H’2021 because demand isn’t as strong as it was then and lead times aren’t as long, either. (You can find our lead time data series here.) Lead times are about six weeks on average for hot-rolled (HR) coil now, up from roughly four weeks last spring/summer.

Still, they’re well below the approximately nine weeks on average we saw in March 2021. One big caveat: That six weeks we’re seeing now is an average. Some mills sport lead times that are well beyond that. And if there had been a tendency among producers to talk up lead times in the past, you could make a case that there is almost a tendency to talk them down now.

I’ve gone through some of the reasons for extended lead times in past columns and articles. Some mills are building inventory ahead of planned maintenance outages and don’t have much (if any) spot availability. Others are grappling with low slab supplies. And still others seem to be having trouble keeping up with demand. In other words, not the kind of stuff you want to put in a press release. And if you’re buying from one of those mills, six weeks might sound like a joke. Maybe your orders are already running late. And maybe you’re having trouble getting spot tons at all.

I’m not saying we’re at a point where lead times are longer than days of supply. That said, we’re closer to that being the case than we’ve been in a while. And, on top of that, service centers don’t have as much material on order as usual. Which, again, tracks with the possibility of March stocks being lean as well.

And that was before the Iran war started

So, long story short, supply was already tight and prices high when the Iran war broke out on Feb. 28.

The conflict has had nowhere near the impact on steel that it has had on aluminum. We’ve all gotten used to the idea that the Midwest premium (more than $1 a pound) has gone berserk because of Section 232 tariffs on Canada. After all, the US sources approximately 70% of its aluminum from Canada.

With the conflict in the Middle East, prices on the London Metal Exchange have gone bonkers too. The Middle East is a massive aluminum producer. And we’re seeing war-related cuts at some of the world’s biggest smelters.

Before the war, the big concern in aluminum had been a collapse in Midwest premium if tariffs came off Canada. Now, even if President Trump took Section 232 tariff off of Canada, I’m not sure it would matter all that much to aluminum – because the underlying price of the metal is so high. Does that mean we’ll get a round of increased Galvalume extras? I wouldn’t rule it out.

And, of course, the most impacted commodities of all are energy products – oil, liquified natural gas (LNG), etc. As has been abundantly reported, Asia and Europe are more exposed to spikes in energy prices than the US is. That’s thanks in no small part to domestic shale production. That said, how much did it cost you to fuel up your vehicle? I bet it was more expensive than just a week ago. And I’m assuming that kind of inflation will get passed along in the form of higher freight rates and fuel surcharges.

Freight frenzy

That’s assuming you can even agree on what the freight rate will be, especially if you’re trying to book material from overseas. We’ve written in prior issues that imports could be more of a factor going forward. That could be more Turkish material in March. And maybe more material from Asia in late spring/early summer.

Is that assumption still safe? I ask because we’ve heard some offers have been pulled because of uncertainty around freight costs. How can you quote a freight rate for more than a week out when you have no certainty about roughly where energy prices might be beyond that?

And it’s an issue in raw materials as well. Higher freight could drive up the cost of Brazilian pig iron, a key feedstock for domestic EAF mills. The transatlantic scrap trade has also been impacted. Does that mean predictions of a seasonally softer market for ferrous scrap in April might be premature? We’ll see.

What else might be in short supply?

The supply-chain shock we’re seeing because of the Iran war has echoes of Russia’s full-scale invasion of Ukraine in February 2022. Anyone with a passing knowledge of the steel industry knew pig iron would be in short supply and that prices would move higher. Just like anyone with a passing knowledge of commodity markets knew the price for oil and aluminum would see sharp increases.

But there always seem to be other things that weren’t initially obvious but were nonetheless disruptive. During the pandemic, we had the chip shortage, which slowed automotive production. Following Russia’s invasion of Ukraine, wire harnesses for automobiles, to cite another example, became hard to get. What else might we rely on Gulf states from besides energy and aluminum that might be harder to get now?

Not much reaction from steel, so far

With the inflationary impact of the Iran war, what’s surprised me a little is that we haven’t seen domestic sheet mills raising prices – or at least full surcharges or extras – more aggressively. I thought maybe they would be slow to get above $1,000 per short ton (st) and then, once that figure was breached, the increases would be chunkier. I was wrong on that. Nucor was up only $5/st with its CSP last week.

But maybe that’s a wise strategy. I don’t like to make 2008 comparisons. Because history doesn’t repeat. That said, there would be shades of 2008 if you had both oil prices and steel prices skyrocketing amid so-so demand. 2008 PTSD aside, we’ll be keeping our eyes and ears peeled this week not only for potential higher steel prices but also for ancillary pieces and parts that might come into short supply or suddenly become more expensive. And if you see anything, let us know at smu@crugroup.com!

SMU Steel 101

On a happier note, SMU will be hosting its first Steel 101 in Mexico this week. We’ll hold the training in Monterrey, a great steel town. (Shoutout to the Steelers fans there!) And we’ll tour Ternium’s new mill in Pesquería, one of the newest steel plants in North America. If you’re a last-minute type, we can handle walk-ins. Details and registration info are here.

If you are someone who prefers to plan ahead, check out our next Steel 101. We’ll hold it on May 19-20 in Corpus Christi, Texas. We’ll be touring Steel Dynamics Inc.’s mill in Sinton, Texas – another great, new North American sheet mill. Details and registration info for that one are here.

In the meantime, thanks to all of you from all of us at SMU for your continued business. We really do appreciate it.