Final Thoughts

“Haha.” [I am assuming they are not a supporter.]

“So much supply is off-line, integrateds can focus more on the costs (cash and realistic). There isn’t much reason to ship coils that are not making some positive contributions. But if the new price target is $540, that is a high hurdle at May demand levels. Prices should rise short term until more capacity comes on, or raw materials retreat. I don’t know what normalized demand will be, so beyond 45 days is long term. There doesn’t seem to be much volume trading at $490+. So, $500 is a big test of demand. Both a new round of price increases and the large shift in AM lead-time will help prices pressure resistance to $500. Personally, I don’t see demand strong enough in the next couple months for $540 hot rolled.”

“I’m more bullish than many of my peers and believe that with scrap prices headed higher in June, along with pretty much guaranteed increased demand with companies returning from lockdowns, the mills should be able to get prices over $500, and they should stick. I’d say $500-520/ton near-term (four weeks) is a realistic level.”

“As John Anton noted in his comments, we’re going to see a bounce off of the bottom from the auto sector, which will seem quite strong coming off of zero for two months. And it’s important to keep in mind that a large portion of the auto steel contracts are tied up with USS, AM and AK, so they have to buy from them. Once the pull for new material begins from those integrated mills, we could see a swift jump in lead times and price strength before they decide to restart blast furnaces.”

The mills I spoke with this morning were a bit skeptical of the $540 and $740 base price minimums being hit any time soon. One told me, “By the way, $27/cwt and $37/cwt is too rich for the short term in my opinion. Around $25-26 [HR] and $34-35 [CR and coated] seem like good spots to be for me.”

The countries subject to quotas with the United States on flat rolled and slabs, such as Brazil, have very few tons (if any) left to sell in the fourth quarter. The way the quota system works, there is an annual quota and no more than 30 percent can be released in any one quarter. Brazil has essentially covered their 30 percent on orders for the first three quarters, which leaves only 10 percent to sell in the fourth.

I am sure John Anton struck a nerve with many of our viewers during yesterday’s SMU Community Chat webinar. I asked him if he (and the chief economist at IHS Markit) continue to be as negative/pessimistic as he was when I saw him last in San Antonio at the beginning of March. His response was an unabashed “yes.” No “V” shaped recovery, but a prolonged “U” that in some segments could go on for many years, he told the webinar attendees. His presentation was a far cry from Dr. Chris Kuehl’s, who is forecasting more of a “V” recovery that begins during the summer, with oil recovering to $100 per barrel in the not too distant future. Anton doesn’t believe oil prices will get to $50 before the end 2021, as there is far too much supply.

You can view the recording of Anton’s webinar by clicking here.

Next week’s SMU Community Chat speaker, Barry Zekelman, CEO of Zekelman Industries, does not agree with Anton’s assessment of the economy. I spoke with Barry this morning and he sees things “picking up” with the worst behind us. Zekelman is not afraid to speak his mind and I expect an interesting one-on-one conversation with him at 11 a.m. ET next Wednesday (May 27). You can join us by clicking here to register. An added bonus…all SMU Community Chat webinars are free for members and the public.

There will not be a Steel Market Update newsletter published on Sunday evening due to Monday being Memorial Day here in the United States. We will publish on Tuesday as normal.

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

John Packard, President & CEO