Notes from the Walls and Halls of New York City

So, what is everyone talking about in the halls and walls of the Sheraton Hotel or the various meetings and mini-conferences which have popped up around steel week in NYC?

Obviously, one of the first items discussed is what impact is the anti-dumping and countervailing duty trade case having on prices, lead times and chasing down the latest rumor (Price increase! More dumping suits! Service center consolidation!), most of which end up being just that, a rumor.

We have found many of those with whom we were able to speak with over the past two days are a little surprised that lead times have not moved out further than what we are currently seeing. There is a debate amongst the attendees about when (and how far) lead times will stretch out.  We spoke with a couple of large service centers who believe that it is just a matter of time before lead times jump and, when they do, many companies will have to buy, pushing lead times even further out.

There has been quite a bit of discussion about steel prices and where prices will be at the end of the year. At the Bank of America dinner on Monday evening, steel analyst Timna Tanners asked the steel people in attendance how many thought steel prices would break through $500 per ton by the end of the year. There was only one (vocal) dissenter in the crowd: an East Coast service center who pointed out where foreign steel prices for late 3rd Quarter and 4th Quarter delivery are being quoted and questioned how domestic prices can exceed those offer levels.

Others in the crowd disagreed, reporting good demand at their end customers (or at their manufacturing company) and were of the opinion that prices would slowly rise for the rest of the year.

The futures markets are banking on prices being above $500 per ton as we move into 2016 and there is a healthy contango market available to those who are able to finance inventory and sell futures (for a more detailed explanation come attend one of our Managing Price Risk workshops). Derivatives are becoming more common place amongst the large and mid-sized steel service centers and end users. We attended a lunch where futures trading was a featured part of the conversation. More companies are learning how to make them work for their company.

It is still early, as price announcements have put a bottom to the market. The upswing in prices is “muted” according to one service center, partially because of the inventory hang over at the distributors. However, there are those who believe the over-stocked situation is over-blown and there is more risk to the upside than many give the market credit for.

We spoke with a number of trading companies who told us the amount of unsold inventory on the docks has shrunk (although we heard from an East Coast service center who told us there was plenty of unsold inventory available). Those who have sourcing from other than China, India, Taiwan, South Korea and Italy told us that their orders continue to flow uninterrupted. One trading company representing a mill in South America felt that their business would grow significantly in the coming months.

Quote from trading company referencing an Indian steel mill talking about the industry, “It’s like dancing on a moving rug.”

Many buyers with whom we spoke told us that their company had made previsions anticipating dumping suits. One manufacturing company told us that he had purchased all of his 2nd and 3rd Quarter material from Southeast Asian sources. His latest purchases were coming from Mexico and Brazil.

The couple of scrap people with whom we spoke pointed out the slow inflows of obsolete grades of scrap, limited sales of exported scrap off the East Coast (Turkey) and strength of the orders coming from the domestic mills as a couple non-participants over the last couple of months are returning. Furnaces are coming back online (Fairfield, Cleveland) and either order books are improved or there is some building of slab just in case there is a labor disruption later this year (contracts expire at USS and ArcelorMittal just as we begin our Steel Summit Conference).

Most do not believe there will be a strike at the steel mills. However, we did speak with a shipping company who told us that one of their unions, with a history with the USW, reported that we need to remember that decisions are many times made with the heart and not with the mind…