Final Thoughts

About one hour before our newsletter was to be sent out to all of you I got a call from one of my close contacts/sources in Asia. I had asked him a question about the Chinese market earlier in the day (overnight for him) and he decided that so much was happening in China that an email was not good enough so he called me this evening (morning in Asia). This contact is a trading source who handles all kinds of products out of and into China from iron ore, scrap, flat rolled, billets, rebar (they call it debar), etc.

First, he reminded me that the Chinese authorities have closed 100-120 million tons of EAF and induction furnaces that did not meet the Chinese equivalent of the EPA emissions standards. He told me, “John, there is a big development as China is now exporting scrap. This has never been done before.” He told me the scrap being sold was bundles and the price is $200/MT FOB Southern China. The scrap was being offered in 15,000-20,000 metric ton lots and is being exported to Hong Kong, Thailand and Egypt. The price includes the Chinese government taxes that have to be paid domestically. He told me to expect the exports to continue for 6 to 8 months. He explained that a number of the furnaces that were shut down were being upgraded and would return to operation. Even so, he thought that would only be 20 percent of the 110-120 million tons that was shut down.

Chinese cold rolled is being offered to Canada as aluminum killed re-rolling quality 1008 max carbon .023″ X 48″ at $490 FOB China with freight to Canada at $57/metric ton.

Hot rolled sales out of China are now very limited due to dumping suits around the world. He told me HRC was sold to the Middle East and to Africa below $400 per metric ton for 2.3mm in width of 1200-1500mm FOB China.

Scrap dealers in the United States need to be aware that billets are being sold at $387/MT FOB China for ASTM A615/706 Grade 60 .04% Vanadium. The billets are going to the Middle East and SE Asia. Grade 40 ASTM 615 numbers are $375 FOB China.

Debars (rebar) and wire rod including 5.5mm are being sold at $400/MT FOB China.

The big iron ore companies in Australia and Brazil have large bonded warehouses in Northern China where they unload their ore and then sell it out of the warehouses. The companies are slowing down shipments to China because the warehouses are full with current inventories of approximately 125-130 million metric tons. The steel mills are buying only what they need now (as opposed to having to buy full shiploads). My source, and the ore companies he represents, expect 62% Fe fines to drop into the high $40’s or low $50’s. Right now they are around $64/dmt – down $30/dmt from the peak just a short time ago.

He also told me the Chinese banks are cracking down on the steel mills and their debt. The banks are not allowing the mills to continue to run their books in the “red” (at a loss). Also, they can’t roll-over bad bonds anymore. China is becoming “regulated.”

MSCI Inventories & My Quick Study

The week has started off with a bang as the Metal Service Center Institute (MSCI) released their service center inventories and shipment data. The MSCI has been doing these calculations for probably longer than I have been associated with the steel industry (40 years for me this year). I do not know who supplies the MSCI with their data and I have always wondered what would happen if I put together a service center index as well…?

Currently, we do ask the service centers taking our flat rolled steel market trends survey to respond to a question regarding their inventories. The results are less than scientific so we do not push the results to anyone other than those who receive our Premium newsletters and website access. Our results tend to have fewer gyrations and have consistently been in the 2.1 to 2.6 months’ supply.  We are conducting a survey this week and we will have the inventory results on Thursday afternoon.

In the meantime, my gut was telling me the 1.82 (unadjusted) and 2.0 (seasonally adjusted) flat rolled inventories seemed to be a bit low from what I was hearing from the service centers with whom I speak on a regular basis.

So, this afternoon I canvassed about 20 service centers of varying sizes and handling various flat rolled products. I asked them the number of months’ supply they had on their floors (not in transit) at the end of March. I took the responses and divided the total of the numbers provided and came up with an average of 2.62 months.

I didn’t ask, but a few of the responding distributors advised that their company was not a supplier of data to MSCI. I do not know how many are in the MSCI mix but I am comfortable with the service centers who did respond as they came from regions from the Upper Midwest, South, Southeast, Midwest and Mid-Atlantic states. We got some very large distributors, medium sized service centers and we even threw in a couple of wholesalers.

How important is the difference between the 2.62 months that my unscientific study discovered and the 2.0 (seasonally adjusted or 1.82 not adjusted) number provided by the MSCI on flat rolled? I spoke to one of my steel contacts earlier today who related to me that at about 2.3 months service centers inventories are “stable” and prices should remain relatively constant. Under 2.3 months and the distributors are forced back into the market to buy steel and, over 2.3 months there is not a big need to buy. At 2.62 months (if accurate) it would explain why there are some pricing pressures with some of the mills right now.

If the 2.62 months supply I discovered is accurate, and it continues as we move into the summer months, then we can expect prices to slide. If the 2.62 months supply shrinks under 2.3 months, then we should see buyers back.

Steel mills earnings start this week and you can bet they will all be talking about the MSCI numbers. We will be following along and will advise later this week and over the weekend.

Steel Market Update has another proprietary product called our Service Center Inventories Apparent Excess/Deficit Model which we provide to our Premium members. We should have this report out either tomorrow or on Thursday of this week. Essentially, we have a model which determines if service centers are carrying too much or too little flat rolled inventories. The model uses the MSCI data plus our own calculation off of that data.

If you would like information about how you and/or your company can become Premium members send me an email: John@SteelMarketUpdate.com

A quick note about our SMU Steel Summit Conference. We are closing in on 200 registrations and we still believe we will fill the room with 500+ attendees. We added a couple more speakers this week and we will discuss those with you later this week. We still have a couple of holes to fill (on purpose) as we work to provide the most entertaining and worthwhile manufacturing and steel conference possible. Those that have attended past conferences are well aware of the opportunities our attendees have to interact with potential suppliers, customers or just those you would like to get to know better.

Our conference is well known for having “decision makers” from both the sales and purchasing sides of the equation as well as top management. If you only go to one conference this year do yourself a favor and make it the SMU Steel Summit Conference in Atlanta on August 28-30th.

Details and registration can be found on our website.

As can details about our Steel 101: Introduction to Steel Making & Market Fundamentals workshop which will be held in Ontario, California on June 22-23, 2017. That workshop will include a tour of the California Steel Industries steel mill.

By the way, I want to welcome the 32 people that were part of our last Steel 101 workshop to our newsletter. We decided to include a free 3-month Premium level newsletter subscription for everyone who takes one of our Steel 101 workshops. The value of that alone is $524. So, welcome to our North Star BlueScope workshop group. Please let us know if you have any questions with the newsletter or website. Best person to help is Brett@SteelMarketUpdate.com or you are always welcome to contact me at John@SteelMarketUpdate.com

As always, your business is truly appreciated by all of us here at Steel Market Update.

John Packard, Publisher