Category: Final Thoughts

Based on the amount of ‘out of office’ replies we’ve been receiving and the results of this week’s steel buyers’ survey, those pesky summer doldrums have arrived for the steel industry.

Maybe some of this uncertainty will get ironed out ahead of Liberation Day tariffs resetting higher rates on July 9. But if I had to place a wager, it would be on more drama and last-minute brinksmanship - whether it comes to the Liberation Day tariffs or the various Section 232s that are in the works.

What should you keep your eye on, considering the latest geopolitical events?

Not many people in the North American steel market had direct US involvement in another Middle East conflict on their bingo card. Prices weren't expected to shoot higher unless something unexpected happened. That unexpected something has now happened. And there is talk of oil at $100 per barrel. What does that mean for steel?

Now that the USS/Nippon deal has been completed, what's next?

Getting back to the price increases I mentioned at the top of this article, to what extent are they aimed at raising prices and to what extent are they aimed at stopping the bleeding that was happening in the second half of May, before President Trump announced the 50% tariff?

We just wrapped another Steel 101 Workshop, where you take what you learned in the classroom into the steel mill.

Steel equities and steel futures fell hard after news broke earlier this week that the US and Mexico might reach an agreement that would result in the 50% Section 232 tariff coming off Mexican steel. The sharp declines didn’t make much sense, especially if, as some reports indicate, Mexico might agree to a fixed quota. They didn't make sense even if steel flows between the US and Mexico remain unchanged.

Even before the news about Mexico, I didn’t want to overstate the magnitude of the change in momentum. As far as we could tell, there hadn’t been a frenzy of new ordering following President Trump’s announcement of 50% Section 232 tariffs. But higher tariffs had unquestionably raised prices for imports, which typically provide the floor for domestic pricing. We’d heard, for example, that prices below $800 per short ton for hot-rolled (HR) coil were gone from the domestic market – even for larger buyers.

I want to draw your attention to SMU’s monthly scrap market survey. It’s a premium feature that complements our long-running steel market survey. We’ve been running our scrap survey since late January. And over just that short time, it’s become a valuable way not only for us to assess where scrap prices might go but also to quantify some of the “fuzzy” indicators - like sentiment and flows - that help to put the price in context.

I think there is an obvious case for sheet and plate prices going higher from here. That’s because, on a very basic level, the floor for flat-rolled steel prices, which is typically provided by imports, is now significantly higher than it was a week ago.

We're about to hit 50% Section 232 steel tariffs. What could happen?

With higher tariff rates on steel and aluminum set to go into effect on Wednesday, June 4, a new round of chaos across the supply chain is likely in store. Expect a significant impact on manufacturers and metal fabricators. But even before the latest round of Trump-tariff whiplash on Friday evening, there was a lot of interesting data coming out of SMU's steel-market survey.

A short tour of key dates in the Nippon/USS deal, and what the future might hold.

I sort of expected big news last Friday and over the long, Memorial Day weekend. Because that's become more the norm than the exception for steel this year. Sure enough, Trump posted on Truth Social on Friday afternoon that he had given his blessing to a “partnership” between Nippon Steel and U.S. Steel. And then over the weekend we had market moving new on tariffs, this time involving the EU.

We're going to have to wait a bit longer for the final outcome of the Nippon/USS deal.

Sure, demand isn’t as good the market had hoped it would be earlier this year. But assuming it doesn’t fall of a cliff, buyers will have to restock at some point. And that might give domestic mills enough leverage to raise prices again.

While I would anticipate market sentiment to pivot and improve if all the questions around tariffs were answered, that still leaves us with a few other factors.

Let's see what SMU survey respondents are saying about Trump's tariffs.

The Tariff Town amusement park ride shows no signs of slowing down.

Cliffs came tantalizing close to buying U.S. Steel in 2023. There were rumors in 2024 that Cliffs might buy NLMK USA before it ultimately purchased Stelco for $2.5 billion in November of last year. Who would have thought that asset sales would have been the focal point of discussion just six months later?

Given the news about tariffs and bringing back industries to the US, a brief look back in time may show how our economy changes with technological advances and the shifting economies of scale. 

We’ve talked about tariffs ad nauseam for much of the year. And I’m afraid this topic isn’t going away anytime soon. There’s a feeling that the tariff “can” will just be kicked down the road again and again, and again.

Can technology help with pig iron and DRI/HBI tariffs?

Tariff-related noise aside, there is one basic factor keeping buyers on the sidelines. Despite recent declines, HR prices remain at historically high levels. And there is no obvious support to keep them there.

United Airlines raised eyebrows earlier this month when it provided two forecasts for 2025 – one assuming a relatively stable economy and another assuming a recession. The reason? Uncertainty around the impact of President Trump’s policy shocks on the broader economy. And it sometimes feels like we’re seeing a battle between those two narratives (stable vs recession) play out within in the pages of this newsletter.

Despite some scary headlines lately (especially about Trump potentially firing Fed Chair Jerome Powell) this is not October 2008 (financial crisis) or March 2020 (onset of the pandemic). But it sure seems like we’ve taken a relatively strong economy and poured a thick sauce of uncertainty over it.

I put some of our survey data through ChatGpt, with interesting results.

Nearly 50% of respondents to our latest survey thought hot-rolled coil prices have already peaked. And where will those prices be two months from now? Responses were decidedly split on that question.

A modest week-to-week change in HR price understates a huge swing in expectations.