Final Thoughts: Got Steel?

Got (Spot) Steel?

In theory, certain mills have spot tons available at a specified price and a reasonable lead time. In practice, as I’ve heard from some of you looking for spot tons, that’s more the exception than the rule.

Take the Midwest. We’ve heard of an EAF mill struggling to come back from an unplanned outage and of an integrated still mill running behind – not only because of strong demand but also because an unusually cold winter delayed pellet shipments along the Great Lakes. We’ve also heard of unplanned outages on at least one coating line in the region.

Production issues aren’t confined to the Midwest. We’ve heard an EAF in the Southeast is struggling to ramp up amid late slab deliveries. And steel buyers on the West Coast tells us supplies are tight there too.

The unplanned outages noted above come on top of the planned ones that typically occur this time of year. And maybe it explains why I was getting urgent texts from some of you over the weekend about an incident at U.S. Steel’s Gary Works, one that turned out not to have an impact on production.

Mexico buys tighten supply

Meanwhile, we’ve been hearing for a while now that certain Mexican producers are buying more steel from the US. Why? Because, in addition to typical cross-border trade, Trump’s tariff regime effectively gives them incentive to do so.

It’s hard to quantify what US export volumes to Mexico have been recently because US export data tend to lag import data. That said, US Commerce Department figures show the US exported 357,949 metric tons (mt) of steel to Mexico in February, the most recent month for which export data are available. That’s up 10% from 325,495 mt in January and up 44% from 248,063 mt in December.

For what it’s worth, those volumes sit well below what Mexico exported to the US in the same period: 124,353 mt in December, 213,397 mt in January, and 159,192 mt in February, per Commerce Department figures.

And while total import volumes to the US have inched up in recent months, they still remain near historic lows. (The details are here.) We’ll release apparent supply figures later this week. And I wouldn’t be surprised if they, too, remain.

Could service center inventories tick lower?

Our premium subscribers will get our March service center inventory figures later this week as well. There, as well, I wouldn’t be surprised if the the numbers tick lower still. (Psst… Service center inventories are a great reason to upgrade from an executive subscription to a premium. If you’d like to do so, contact us at smu@crugroup.com.)

How can I say that before I’ve seen the number? We ask in our steel market surveys (results of which are available to premium subscribers here) how they’ve been managing their inventories. Most respondents tell us they’re maintaining inventories. Few have reported building stocks. And a few, a little to my surprise, say they are reducing inventories.

Maybe that speaks to a broader caution in the market. Many people have been surprised at the length of the current upcycle. It has spanned across Q4 and Q1 – and now stretches into Q2.

I’ve heard a long list of concerns, many of them valid. Demand might be overly concentrated in a few segments (data centers, for example). Supply-driven rallies have proven fragile in the past. Also, what if imports come back in a bigger way in May/June? And what if the Iran War sparks inflation high enough to derail the broader economy? (Who is going to buy a new car or a new appliance if they’re mostly focused on paying for food and fueling up the vehicle they’ve got?)

Functionally, however, if such concerns keep people from buying, it might only serve to extend the current price upcycle. And let’s loop back to inventories for a moment. If they keep moving lower, and if lead times (which we’ll update on Thursday) remain longer than usual, things could get tight indeed.

But maybe not for equally so for everyone. We continue to hear that contract buyers can get tons. Maybe they’re being held below their maximum threshold. Still, it’s not like the allocation we saw across the market in 2021.

RIP (for now) big, low-priced spot deals

But it might feel like allocation if your supply is heavily tilted toward the spot market. And I’m guessing we can name a few companies, including some of the bigger sheet buyers out there, who have found success in past cycles by buying at or near the bottom of the market.

Last June, for example, Cleveland-Cliffs announced it would seek $950/st for hot-rolled (HR) coil with the opening of its July spot orderbook. SMU’s spot price for HR subsequently dropped into the mid-800s, according to our pricing archives. And we heard of larger buyers placing orders – ones at volumes probably not repeatable for most steel consumers – in the $700s/st. (This is not a new phenomenon. I remember similar things happening with the former AK Steel. They didn’t want to participate in the spot market. Until they did. And when they did, it had no small impact.)

Such massive discounts can give the largest buyers a big edge of their competition. But we haven’t heard of many such special deals since Cliffs last year signed multi-year, fixed-price automotive contracts with multiple OEMs. In other words, I wouldn’t be surprised if the market remains tight and if prices continue to inch upward – especially as companies try to pass along higher freight and fuel cost as well as higher costs for certain raw materials.

I know some of you don’t think all of this can last much longer. You think mills are catching up, that imports will arrive in more significant volumes, and that demand could slow both seasonally and perhaps as part of a broader economic slowdown. (I’m not in the business of predicting slowdowns. I remember when the smart money was on a recession in 2022. And then none occurred.)

To be clear, I wouldn’t be surprised to see imports revert a bit closer to their historic norms or for lead times to eventually plateau, even if they do so at high levels. Still, that doesn’t help in the very short term if the immediate question is “Got Steel?”

SMU Community Chat

Ken Simonson, chief economist for The Associated General Contractors of America (AGC), will join SMU for a Community Chat webinar on Wednesday, April 15, at 11 a.m. ET.

The live webinar is free. A recording will be available free to SMU members. You can register here.

We’ll discuss the outlook for construction markets – in particular when it comes to data centers. We’ll also look at how tariffs and immigration policy might impact the building and construction. And we’ll of course take your questions too. So don’t forget to bring some good ones to the Q&A!

Until then, thanks to all of you from all of us at SMU for your business. We really do appreciate it.