SMU CEO Talks About Current Steel Conditions

It has been a few years since the weather got so cold that it impacted steel production and raw material supplies. I was speaking with one raw material provider who told me they do not anticipate any issues like what we saw in 2014 when the integrated steel mills ran short of iron ore. The conditions in January allowed for the movement of ore and other raw materials into the Great Lakes mills. So, even if we get a hard freeze that delays the opening of navigation (which is slated for March 25) the integrated mills should be fine.

However, over the short term, steel buyers should anticipate issues developing at some of the steel mills. We learned that Texas is having rolling energy blackouts as wind turbines are frozen, problems getting enough natural gas and a problem with a nuclear generator. We also heard of electricity cuts in Arkansas, and we should anticipate other areas of the country being affected.

Besides energy cuts, we need to be aware of transportation issues affecting the movement of steel by truck, rail or barge. Steel service centers are reporting cancellations of trucks coming into their buildings, and we are hearing of manufacturing companies delaying shipments due to weather issues.

The Union Pacific Railroad put out a statement informing their customers to anticipate an additional 72 hours of delays due to the storms rolling across the country.

Where you reside in the country will figure into whether your area is experiencing a “Black Swan Event” or just another day in the industry. I would venture to say most of the country is suffering transportation issues that could continue through most of this week.

Longer term, we may see steel prices remain at these lofty levels for longer than originally thought. We are seeing evidence in the HRC Futures market that may suggest market participants are beginning to realize the pressure on steel prices will remain for a while.

Next thing to watch: Oil prices. I was watching CNBC this morning before walking into my office and heard them discuss an upcoming oil “super cycle.” The idea is that as the pandemic ends, and everyone receives their vaccine, the lure of travel by car or by plane will be too much to resist. I’ve got to admit, now that I have received my first dose of the vaccine, thoughts of traveling are dancing in my head. It would be nice to go see my kids.

The idea of an oil/gas super cycle will be something we discuss at this year’s SMU Steel Summit Conference.

The Futures markets are reacting, with March HRC (hot rolled coil) trading all the way up to $1,270 per ton earlier today. Spencer Johnson of StoneX told us, “There’s a lot of buying from someone. March is all the way up to $1,270, which you would not really pay unless you thought $1,300 was in the cards….” We were told this was well above last Friday’s $1,209.

As of 2:30 p.m. ET this afternoon, HRC was trading as follows on the CME:

March high $1,270, last $1,250

April high $1,224, last $1,205

May high $1,138, last $1,115

June high $1,070, last $1,025

July high $1,004, last $960

I was told that over 7,000 tons of electronic trading alone was done between February and July settlement dates today. If you want to know what that means, I suggest attending one of our Steel Hedging workshops.

Spencer Johnson will be teaching our Steel Hedging 201: Advanced Strategies & Execution Workshop on Feb. 23-24. You can learn more about the agenda, our virtual platform, cost to attend, and how to register by clicking here.

On March 30-31, Spencer will be teaching one of our Steel Hedging 101: Introduction to Managing Price Risk Workshops. You can learn more about that workshop by clicking here.

While I am discussing workshops, our next Steel 101: Introduction to Steel Making & Market Fundamentals Workshop will be conducted virtually on May 11-12. You can learn more about that workshop by clicking here.

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John Packard, President & CEO, John@SteelMarketUpdate.com