Final Thoughts

I received some interesting comments from steel buyers regarding demand, momentum and steel pricing.

A large service center told me, “In my opinion it depends on how you define demand. That may sound odd, but here is what I mean. Our automotive schedules/forecasts are absolutely jammed right now, and we are shipping to our auto OEMs and stampers at an absolute max rate. So, if that is how you define demand, then yes, the current demand level is strong enough to support these increases. If you define demand as what the end-users/consumers are buying at, then no, the demand doesn’t support the current pricing… The second part is the supply side. I think we are all surprised–pleasantly surprised if you are a distributor carrying inventory–that the mills have not restarted more supply back up. It seems as if the mills may have figured out that the more blast furnaces that come back on is only going to bring about the end of this upwards cycle that much quicker. Once the empty pipelines on the demand side fill up, I believe the supply and demand will be in balance and we will have a price ‘correction’ to bring things back down.”

When this purchasing executive was asked when the correction might happen, we were told, “Mid to late Q1.”

Steel buyers are in a real quandary. Do they purchase steel perceived to be high-priced and supply-side driven, or do they buy only what they need and wait for momentum to switch when more capacity comes on-stream?

“Over $200 of increases in six weeks seems overheated,” is what another large service center told SMU today. “I think there is some panic buying occurring, which is exacerbating mill lead times. Mittal is woefully behind with seemingly everyone and so many are short steel right now. While our demand has improved significantly, it is hard to gauge how sustainable it is. Customers are smart and read the headlines about pricing going up and are likely trying to get ahead of it. 

They continued, “Plate has been really challenged to move the pricing higher. Other than higher scrap, the only impetus for higher numbers is to keep pace with HRC.”

Another service center discussed market conditions and pricing: “Under normal conditions, I would say the mills have overshot market pricing. However, given extended lead-times, lean inventories, low import volumes, and mill outages, I think the numbers will see some support. Most mills have very limited spot availability between now and the end of 2020, so it almost doesn’t matter what they quote today. Our thought is HR spot market pricing peaks around $630-$640. We do believe this market will extend a bit further than most would typically expect. Historically, the steel market softens after Thanksgiving (until the end of the year) based on holiday schedules and year-end inventory. However, supply tightness will make 2020 much different. Market momentum will be reversed when the additional capacity comes back online and service center inventories are balanced. We do caution buyers that very seldom do we see new mill production start up without hiccups. So do not expect perfect steel to just start rolling off the new lines within the first 3-6 months.”

SMU note on the last comment about new production: What Big River Steel is doing is bringing on a new EAF, caster, etc., which then feeds into an existing hot strip mill and then downstream operations that already exist and are well proven. In my opinion, the “break-in” time for the new equipment could be days to a maybe a week or two to get to the production levels expected.

I have got to give a nod to Big River Steel as their timing has been impeccable when they brought up the mill, and now with the expansion of the mill. They should be in a good position to get the orders they need to build the order book for their new production.

I assume U.S. Steel recognizes this and will try to close on the purchase of the remaining shares of BRS sooner rather than later.

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

John Packard, President & CEO