Final Thoughts: Are we nearing peak steel market tightness?

Also, mills – whether integrated, EAFs, or re-rollers – have been struggling to keep up with orders. Maybe because of strong demand. Perhaps low slab supplies or operational issues (or some combination of such factors).

But no trend, no matter how enduring, lasts forever. (The current upcycle has spanned roughly October to March, and six months is a long time in steel.) And so, I think it’s worth asking a few questions as we try to decipher what’s in store for Q2-Q3.

Are we near peak tightness?

I’m not saying the market is about to reverse. But could we see prices continue to inch higher, plateau, and then start to slide back? A lot hinges on whether and how long it takes mills to catch up on orders. And we’ve heard some early rumblings that they are catching up (or at least that they’re less late).

That makes sense. Lead times are starting to push past the peak of spring maintenance outages season. And as we do that, we’re inching closer to the typically seasonally slower summer months, automotive outages, etc.

Also, it looks like U.S. Steel will restart the ‘B’ blast furnace at its Granite City Works near St. Lous soon – perhaps very soon, assuming everything goes as planned. That makes sense too. You’d assume the Pittsburgh-based steelmaker would want the ‘B’ furnace up and running before it takes down the No. 14 furnace at its Gary Works near Chicago for a reline and other upgrades. The reline work at Gary Works is scheduled to begin in May.

We’ve been hearing that it’s been hard to get spot tons from the U.S. Steel system – whether it be the company’s integrated mills or Big River Steel – not only because of demand but also because the company has been building slabs ahead of 100-day, $350-million reline of No. 14. Maybe we’re getting closer to a time when USS will have banked enough slabs and to be able to devote more tons to the spot market?

Keeping tabs on SE Asia slabs

Speaking of slabs, here’s something new. Vietnam could ship at least 100,917 metric tons (111,221 short tons) of semi-finished steel to the US, according to Commerce Department import license data last updated on March 23. Most of that volume (91,713/mt) is slabs.

If that figure seems off to you, I can understand why. Vietnam hasn’t shipped any semis to the US, per Commerce figures going back to at least March 2020. The ~100kt semis figure also explains how Vietnamese exports to the US more than doubled to 147,124 mt with a week still to go for March data. (Vietnam shipped 61,928 mt of steel to the US February.)

The Commerce figures don’t tell us where those tons went. But I have heard certain re-rollers that had been short slabs don’t expect to be for much longer.

Speaking of slabs and Southeast Asia, it might also be worth keeping tabs on Indonesia too. Indonesian industry, including its steel industry, has grown rapidly in recent years. And Indonesia shipped 52,003 mt of slabs to the US in November-December after previously having shipped none. Could that trade expand significantly and as suddenly as what appears to have happened with Vietnam? It’s a question worth considering.

Will imports remain low?

As far as total steel imports in general go, the US was licensed to import 1.22 million mt through March 23, according to Commerce figures. That’s about 53k mt per day. If imports continue at that pace, they’ll be roughly on par with February in terms of tons per day. But they’ll be higher than January, when the US imported about 1.50 million mt, or roughly 48k mt tons per day.

The big question: Could we start to see more import tons arriving over the next few months? I ask that because I know some companies late last year and early this year correctly anticipated that US prices would remain higher for longer and turned to the import market.

I’m not saying there will be a flood of imports. The case for imports isn’t a slam dunk if you’ve got a CRU-minus contract with a significant discount. But as domestic prices rose and as lead times stretched (and as it seemed increasingly clear President Trump wouldn’t remove Section 232 tariffs), it might have been worth taking a shot.

The big wildcard: the Iran war

And then there are the more difficult questions surrounding the impact of the Iran war.

To some extent, this reminds me of the early days of the Covid pandemic. Many of us knew there would be an impact. We just didn’t know exactly when we’d feel it or what the extent of it would be.

In Asia, people are already waiting in longs lines for gas. I know that not only from news reports but also from in-laws in the region. In North America, we’re not very reliant on oil that moves through the Strait of Hormuz. But oil is a global market, and anyone who has to fuel up is paying more. In fact, gas prices have jumped about $1 per gallon over the last month, according to AAA.

Diesel prices are up too. And steel, like just about everything we use or consume, moves on trucks running on diesel. People are already grumbling. Take, for example, this comment from someone responding to one of our surveys earlier this month: “Freight pricing is going higher than fuel increase justifies. 7-8% increase due to fuel. But carriers are increasing prices by 25%+.”

Aluminum has it even worse. Prices for the metal were already high because of Section 232 tariffs on Canada, where the US gets most of its imported aluminum from. Where did we get much of the rest from? The Middle East. And aluminum prices have surged again as the Iran war results in lost production at some of the world’s biggest smelters.

SMU’s Brett Linton notes here that all-in prices for aluminum (LME plus Midwest premium) are up nearly 200% from a year ago. And that huge gain doesn’t reflect attacks over the weekend on Emirates Global Aluminum (EGA) and Aluminum Bahrain facilities. Bloomberg reported that EGA suffered “significant damage” and that Aluminum Bahrain was still assessing the damage.

Cynically speaking, maybe the price spike in aluminum is good for steel. We’ve seen things like hoods switch from aluminum back to steel on certain vehicle models. Do we start to see non-automotive applications, things like siding or gutters, move back to steel? We’ll see. Or are any opportunities for substitution offset by the possibility of inflation slowing demand across the board. Basically, will people buy fewer cars and appliances because they have to set aside more money for fuel and food?

Which gets me to maybe the biggest question: Do you buy now because you know that prices are only going to move higher as war- and fuel-related inflation kick in? Or do you sit on the sidelines until you know what the impact on demand will be?

SMU Community Chats and a new survey question

I wish I had easy answers to some of those questions. I don’t. So, what you’ll see from SMU in the weeks ahead are Community Chats from experts in construction, shipping, energy, and other sectors who should be able to give you some “actionable intelligence.” Stay tuned here as we fill out that schedule.

Also, we’re curious to hear from you how the war in the Middle East might be impacting your business. To that end, we’ll introduce a new question on the subject to our steel market survey this week. We’d really like to hear your feedback.

To those who participate in our survey, thanks! You help SMU keep our finger on the pulse of the steel market. And to those who don’t but would like to, give us a shout at smu@crugroup.com and we’ll get you hooked up.

Finally, to all of you, thanks for your continued support. We really do appreciate it.