SMU CEO Comments on Current Steel Situation

Next week we will produce the full report, part of which is shared with our Premium level member companies. Part of the analysis produced at the time of both the flash report and our final product discusses how balanced inventories are at the service centers, and what movement we are seeing in ordering patterns, contract percentages, etc.

If you are a service center and would like to learn more about our data and how to become a confidential data provider, please contact Estelle.Tran@crugroup.com If you are a subscriber to our Executive level newsletter and you would like to know what you need to do to upgrade to Premium, please contact Paige@SteelMarketUpdate.com

As we discuss supply and supply issues, we did inquire in last week’s survey if the purchase/merger of Cliffs with most of the ArcelorMittal USA facilities would tighten the market. A small majority of the respondents believe that it will. If you think about it, any time you have mills consolidating, the amount of flexibility in negotiations due to changes in the competitive landscape could portend tighter price controls in the future.

In the supply side scenario discussed in the article above, entitled “SMU Reader Lays Out Supply Side Concerns,” I did reach out to a couple of people I respect in the industry for their comments. One of them, who advised me his function is to analyze longer term trends, told me, “If the situation you lay out below [I shared the article with him prior to publication] happens, we will likely have a significant increase in prices, followed by a significant decline. That seems to be the way it works these days.”

With AMUSA suggesting base price levels of $650 per ton on hot rolled, and $850 per ton on cold rolled and coated, if collected, the market will have moved +$210 per ton (on HRC) since Aug. 11 (8 weeks). Galvanized at $850 per ton base ($42.50/cwt) would be up +$210 during the same eight weeks. The last time we saw price averages at these kinds of levels was late March 2019.

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One of the items I watch closely in our flat rolled and plate market surveys is spot prices coming out of service centers to their end customers. We follow this data from both the manufacturing company perspective as well as the service centers. Both were reporting a more aggressive service center spot price market with 84 percent of the manufacturers reporting distributors as raising spot prices, and 94 percent of the service centers reporting raising spot prices to their customers. This is very supportive for mill price increases.

Spot price support is even stronger when taking into consideration the lead times we reported out in Thursday’s issue. If we find inventories as being less than 2.5 months supply (and on-order tonnage as being modest), then we can expect mill prices to increase over the next month or longer.

We are starting back up our SMU Community Chat Webinars on Wednesday of this week (11 a.m. ET). Our speaker will be Timna Tanners, Metals and Mining Analyst for Bank of America. With the Cliffs deal for ArcelorMittal USA, Big River Steel about to start their expansion, questions about supply and demand, and Timna’s Steelmageddon theory for pricing… I thought now would be a good time to bring her back to discuss the markets from her perspective. You can register for this FREE event by clicking here or going to www.SteelMarketUpdate.com/blog/smu-community-chat-webinars

We are going to have more interesting announcements about moves we are making in the marketplace in the coming days/weeks. Stay tuned.

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

John Packard, President & CEO