Final Thoughts
Final Thoughts
Written by Tim Triplett
December 2, 2021
(Editor’s note: This is a corrected version of Final Thoughts. The original misstated a hot rolled peak of $1,995 per ton, not $1,955.)
In our questionnaire this week, we asked steel buyers: Do you sense that the market is changing, and in what ways? Not surprisingly, many referenced shortening mill lead times and declining steel prices. At an average of $1,770 per ton, hot rolled has dropped by about $185 or 10% from its early-September peak of $1,955. In a normal market, a $185 decline would be considered a disaster. In the current environment, some describe it as a “slow softening” or even “a trickle.”
Below are some of their other observations on the changing market conditions:
“My sense is the market is changing, but slowly at this point.”
“Yes, there have been some changes – Section 232’s termination, supply-chain constraints and increasing HRC stock levels.”
“There’s more availability on generic hot rolled.”
“Lead times are definitely shorter.”
“The market has clearly changed in that there is (1) no more panic buying, (2) there are more buyers sitting on the sidelines and (3) a consensus that pricing will continue to soften for the duration of Q4.”
“Demand is okay, but with the price reductions, people freeze.”
“There are holes in the order book caused by the fourth-quarter slowdown.”
“Supply is up, demand is down, and the market is dropping.”
“Pricing adjustments will decline more rapidly by February.”
“Service centers that need receivables/cash are looking to move product and are very aggressive. The market might be stronger in January, but they can’t wait – they need to pay the mills.”
“We have obviously peaked, but the slow trickle down seems to lend credit to mill consolidation playing a bigger role than ever.”
“It’s very quiet, and no one knows what the next 60-90 days will look like.”
Scrap Prices Rolling Over for December?
Ferrous scrap prices saw a big jump in November and some grades were expected to rise a little further in December, but that’s not the way negotiations are shaping up. In a bit of a surprise, the mills in Detroit announced today they are rolling over prices for all scrap grades from November.
“Prices are definitely trending sideways, which is lower than most expectations,” one SMU source said.
The main reason: Demand for U.S. scrap overseas, notably in Turkey, is weakening, because the Turkish economy is in crisis and the value of the lira is down sharply. So U.S. exporters are seeking more buyers for shredded scrap domestically.
Scrap for December won’t settle in all regions for another couple days, but if they follow Detroit’s lead, flat to declining prices for prime and obsolete grades can only add to the downward pressure on finished steel prices.
Added another scrap exec: “It remains to be seen if the December market trades sideways nationwide, but scrap will be strong in January.”
Upcoming SMU Events
There’s still time to register for SMU’s popular Steel 101: Introduction to Steel Making & Market Fundamentals Workshop, which will be held virtually on Jan 11 and 12. Info on the agenda, instructors and costs is available by clicking here
SMU’s Introduction to Steel Hedging Workshop is also a virtual event on Feb. 1 and 2 covering techniques to protect your company and customers from steel price volatility. More information is available by clicking here
The 33rd Tampa Steel Conference, an in-person event, will be held at the Marriott Water Street Hotel in Tampa, Fla., on Feb. 14-16. You can learn more about the agenda, speakers, costs to attend, and how to register by clicking here
As always, we appreciate your business.
Tim Triplett, SMU Executive Editor, Tim@SteelMarketUpdate.com
Tim Triplett
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Final thoughts
SMU latest' steel market survey paints the picture of sheet market that has hit bottom and begun to rebound. Lead times are extending again after stabilizing earlier this month. Mills are far less willing to negotiate lower sheet prices - even if there are still deals to be had on plate, according to the steel buyers we canvassed.
Final thoughts
SMU’s sheet prices firmed up modestly this week, even as CME hot rolled futures declined. What gives? My channel checks suggest that demand remains stable and that buyers have returned to the market following new HR base prices announced by mills earlier this month. I’m looking forward to seeing whether lead times, which have stabilized, will start extending. SMU will have more to share on that front when we release updated lead time figures on Thursday. As for HR futures, what a reversal! As David Feldstein wrote last Thursday, bulls expected mill price increase announcements. And we briefly saw the May contract climb as high as ~$1,000 per short ton (st).
Final thoughts
There’s that concept from Adam Smith we all learn about in our Econ 101 classes: The Invisible Hand. A simple Google search will provide a refresh, but if memory serves I would classify it as something akin to “the market is magic” or “the market’s gonna market.” Today, obviously, we live in a mixed environment. There are a lot of hands out there, and they’re not too difficult to see. In this election year of 2024, one of the most visible hands out there probably belongs to the federal government.
Final thoughts
I’ve had questions from some of you lately about how we should think of the spread between hot-rolled (HR) coil prices and those for cold-rolled (CR) and coated product. Let’s assume that mills are intent on holding the line at least at $800 per short ton (st) for HR. The norm for HR-CR/coated spreads had been about $200 per short ton (st). That would suggest CR and coated base prices should be ~$1,000/st. Good luck finding anyone offering that.
Final thoughts
SMU’s price for hot-rolled (HR) inched lower this week. I wouldn’t be surprised, however, if we start to see prices and lead times move higher in the weeks ahead. The modest declines in HR this week are probably the result of lingering deals cut at “old” prices, as sometimes happens after mill price increases. But those deals will probably be out of the market soon if they aren’t already. So why do I float the idea of higher prices? Some big buys have been placed. It reminds me a little of what we saw last fall, when people restocked in anticipation of higher prices once the UAW strike was resolved.