Final Thoughts
Final Thoughts
Written by John Packard
February 26, 2021
There has been much said about the squeeze on supply of flat rolled and not as much about demand. Demand has been quite good in all sectors except the energy sector, which has been struggling for a couple of years due to prices that went below $40 per barrel.
Now we are seeing warning signs regarding demand as the lack of semiconductors has already hit a number of U.S.-based automotive manufacturing companies (see article above). Appliance, another steel intensive industry, is warning that their manufacturing plants could be next.
The Associated General Contractors (AGC) reported that the percentage of construction firms delaying projects increased to 16.2 percent, which is 1.2 percent higher than what was reported by the Census Bureau in January.
The Architecture Billings Index (ABI) was reported to be 44.9 for January (seasonally adjusted) and continues to be below the 50.0 level that indicates growth in construction projects.
From our conversations with those in the building industry, there is a growing concern regarding commercial construction, although residential currently appears to be quite strong.
Those who worried about the Biden administration doing away with the Section 232 tariffs can rest a little easier today. The nominee for U.S. Trade Representative, Katherine Tai, supported the tariffs during her Senate confirmation hearing last week (see article above).
My opinion has been and continues to be that the new administration is going to be very pro-steel and manufacturing. How the administration will reconcile the two when it comes to steel prices will be the interesting part.
The expectation is for steel prices to drop once we get into the third quarter and the market “normalizes” from added capacity at SDI Sinton, Nucor Gallatin, North Star BlueScope, the restart at JSW Mingo Junction (and on plate JSW Baytown) and with the settlement of the NLMK Farrell strike.
What happens between now and summer is a question many are asking. Will benchmark hot rolled spot prices hit $1,300 per ton over the next few weeks. Prior to “Snowmageddon,” I would have guessed no. Now I am not so sure.
A steel buyer told me late last week: “John, this market is way worse than many believe. I have orders past due over five weeks with two different mills in the South. Last week’s Snowmageddon made things so much worse. We buyers can’t find hardly any steel to buy. How do you determine prices in the market as transactions get very limited?….”
He continued, “I was not quoted by every mill in the U.S. yesterday for April/May production. I realize everyone hasn’t opened May yet, however I was told by a minimill to expect limited to no spot availability as they are already more than four weeks behind. This is going to get worse. I am buying imports that are landing now as my analysis a few months ago was expecting this. The problem is, unlike in 2018, there is not enough volume of imports to save the day this time. SDI Sinton is already alluding to the fact their tons will probably be sold out for many months even before the mill opens.”
We will be watching lead times, demand, supply, and inventories very carefully over the coming weeks to see what cracks (if any) form that might impact future spot prices. For now, the SMU Price Momentum Indicator is stuck on Higher over the next 30 days.
Be careful out there.
As always, your business is truly appreciated by all of us here at Steel Market Update.
John Packard, President & CEO, John@SteelMarketUpdate.com
John Packard
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