Steel Buyers Say More Risk Buying Domestic Than Foreign Steel

This same buyer told me, “We do not have an inconsequential amount of foreign coming.” They have been reducing domestic steel mill orders, but the biggest impact will be later this year. The current situation is, if you need material, you buy what you need, he said.

A large service center told us that prior to “Snowmageddon” (the weather event in Texas and elsewhere in the South), it appeared prices were beginning to peak. As soon as the weather event occurred, prices shot right past what was expected to be the peak a few weeks back. This is the buyer who told me that today there is less risk buying foreign steel than there is buying domestic steel.

Buyers are advising that spreads between domestic and foreign hot rolled are $100 to $200 per ton with lead times on foreign one to two months longer than domestic (not taking into consideration domestic running one to two months late). When it comes to coated products, a manufacturing company put the spread at $300 per ton. At $300 per ton, there is essentially “no risk,” according to various steel buyers.

One of the buyers I spoke with made an interesting observation regarding the reluctance of the integrated steel mills to bring back idled blast furnaces in order to meet the supply issues. “If the price is not stimulating a response, [the integrated mills] are scared of the tonnage to come [referring to a new SDI facility, expansion of Nucor Gallatin, NLMK returning to full production, JSW returning, etc.]. If you do not bring a mill up today, you may never bring it up.”

So, foreign is coming.

I spoke with a trading company this afternoon who confirmed orders for Turkish hot rolled were sold one to two weeks ago at $53.00/cwt-$55.00/cwt CIF, Duty Paid, USA Port ($1,060-$1,100 per net ton). The new offers are just starting this week and the Turkish mills are asking for higher prices ($57.00/cwt or $1,140 per net ton). I was told there is no problem selling whatever volume the Turkish mills are allocating to this specific trader. “People are concerned and they are just trying to get steel.”

Our sources are telling us that Ternium has begun taking HRC orders after being out of the U.S. market for a while. Some of the orders may be moved to the new hot strip mill for June and July production, but are originally being promised off existing equipment. We understand prices are spread over a wide range depending on relationship, item purchased, etc. Prices being quoted range from $1,140 to $1,280 per ton delivered into the U.S.

We understand from market sources that NLMK workers have returned to the Farrell, Pa., mill and the hot strip mill and pickle line are running full this week. SMU anticipates downstream operations will increase production as substrate becomes available. Based on comments from NLMK customers, SMU is unaware of any growth in available spot tonnage as we anticipate the mill is working down their backlog of orders already in the system. We asked NLMK to comment and they chose not to do so at this time.

I do not see any increase in NLMK tonnage having any calming effect on the current steel price environment. NLMK customers advised there has not yet been a reduction of delivery dates on late orders.

This morning I was listening to CNBC and they mentioned that the Philadelphia Fed Manufacturing Index came in at 51.8, which is the highest number for current activity since 1973. For those of you who were not in the industry (and it actually pre-dates me by a few years), there was a boom in 1973 that resulted in interest rates exceeding 20 percent in subsequent years, and the steel industry (and the general overall economy) had its worst four to five years shortly thereafter. Not to say it is going to happen again, but the Fed chairman seems unconcerned about the possibility of inflation.

A manufacturing executive whose company is heavily involved in the construction industry told me, “The supply chain is a mess.” He went on to discuss not just steel but other commodities used in construction, which are in short supply, on allocation or just not available. As far as he is concerned, inflation is already here, and here to stay.

I spoke with another manufacturing company executive this afternoon who attended our Steel Hedging 201 workshop, and who had other employees attend both our Steel Hedging 101 and 201 workshops. He told me they were pleased with both workshops and complimented Spencer Johnson of StoneX for being a great instructor. He said Spencer was easy to follow and very accessible and thorough when responding to questions.

We will conduct our next Steel Hedging 101: Introduction to Managing Price Risk Workshop on March 30 and 31 (half day each day). This will be a virtual workshop, meaning you do not have to leave your office or home office to participate. You can learn more about the agenda for the Steel Hedging 101 workshop, biographies of our instructors, costs to attend and how to register by clicking here.

We have a number of workshops on hedging and the steelmaking process, which we will be conducting throughout the year. To get more details on exactly when our Steel 101: Introduction to Steel Making & Market Fundamentals Workshop, Steel Hedging 201: Advanced Strategies & Execution Workshop and our Galvanized Steel Hedging Workshop will be conducted and the costs to attend, go to: https://events.crugroup.com/steel101/home

Some of the companies that registered this week for the 2021 SMU Steel Summit Conference (those with an * indicates more than one person from their company will be attending): Greenpoint Metals, Inc.*, SSAB*, Worthington Industries*, U.S. Steel Corporation, and Atkore International*. You can join these companies and the approximately 250 individuals who have already registered by clicking here. You can learn more about our speakers, SMU Youth Leadership Award (and how to nominate someone for this year’s award), our agenda, costs to attend and how to register by going to: https://www.events.crugroup.com/smusteelsummit/home

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