SMU Data and Models

Keys to Watch During July

Written by John Packard

July 3, 2014

This month will be focused on foreign steel imports. The month will kick off on Thursday evening or Friday morning (July 10th or 11th) when the US Department of Commerce is slated to report their final determination regarding the oil country tubular goods (OCTG) dumping suits. This determination is critical to those mills who support the energy sector (oil & gas) as foreign OCTG has been dominating the market for some time with the biggest culprit being South Korea. The domestic steel mills are counting on South Korea to be hit with duties which will need to exceed 25 percent in order to slow the flow of OCTG into the U.S.

The rumor mill has been active for a number of months regarding another trade case coming. The industry believes that there will be a case presented against the Chinese on cold rolled which, when we last checked a little more than a week ago, could be bought CIF, Duty Paid, FOB USA Port for $32.75/cwt or, essentially at domestic hot rolled pricing. There is also speculation that a dumping suit will be filed against China, India and Taiwan on galvanized and Galvalume steels. The expectation is the suits will be filed within a couple of weeks of the final determination of the OCTG dumping suits (with the assumption that the US mills will prevail).

Then we need to watch the import numbers themselves this month. After hitting 4 million net tons in May, June is looking like it will be down to 3.5 million net tons. However, 3.5 million net tons is still a very large number – especially when we are seeing increases in hot rolled coil, galvanized, cold rolled and Galvalume well in excess of their 12 month moving averages. It will be critical to watch how July import numbers trend in the coming weeks.

Something that may happen by the end of the month is the potential sale of Severstal NA assets here in the United States. If the mill is consolidated amongst the existing mills there could be major ramifications down the line as fewer competitors means less flexibility in sourcing steel (and ultimately higher prices).

Demand is another issue which will need to be watched carefully. Many economists believe demand during the 2nd half 2014 will be well above that seen during the 1st Half. Increasing demand will have a direct impact on domestic steel mill production and pricing.

Then we need to watch supply which has been an issue for all of the 1st half 2014. U.S. Steel should have all of its blast furnaces back up and running by the middle of July. The only major disruption we are seeing is from the maintenance of ArcelorMittal #7 blast furnace at Indiana Harbor. This is their largest furnace in the United States and it should be coming back online toward the end of July.

At that time it will be important to gauge where the balance is between supply and demand in the United States.

John Packard

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