SMU Survey: Views on Prices, Demand, Tariffs, Inflation

SMU asked: Some hot rolled price offers are nearing $1,600 a ton. At what level do you believe HR prices will peak?   

“I think there’s a 75% chance the price peaks above $1,600 a ton.”

“Between $1,600 and $1,660.”

“I’m guessing $1,700?”

“I’d say $1,700 a ton or higher; demand is still strong and order books show no weakness in sight.”

“I think we’ll see offers around $1,800 a ton and indices may be just shy of $1,700 a ton before it peaks. I wish I could see the pundits and analysts’ faces!”

“The HRC base has already surpassed the $1,600 per ton mark. Lead time on the spot market is July ship with order books closing soon. Automotive is poised to pick up again. I’d say an $1,800 peak price is possible now.”

“We are focused on availability, more than price.”

“I gave up guessing; it will continue to rise as long as demand exceeds supply.”

Demand Destruction?

SMU asked: Are you seeing signs yet that record-high steel prices are hurting demand?

“No, demand is still booming even at these prices. All business sectors need much more steel than I can buy.”

“No, and in fact I’ve been surprised that it appears nearly all manufacturers continue to raise prices. In past up cycles, which didn’t last as long as the current one, manufacturers just ‘rode out’ the steel increases, as they had become used to the history of ‘up/down’ patterns. In this particular market, they have been much more aggressive. Part of this is due to the fact they are seeing increased costs on just about everything, and it’s come swiftly and frequently.”

“We still have a multi-month backlog, but our order intake has slowed. This is our slowest time of the year, so it isn’t unexpected. But the fact that anything is meeting expectation right now, after the 13-month roller coaster we’ve been on, is notable.”

“Not yet, although buyers are a bit more tentative due to these high prices.”

“Slightly, but nothing major yet.”

“I’m honestly a little surprised to say no, we haven’t [seen demand decline]. Folks are busy enough to where they need steel. That tells me this thing will keep humming for a while longer.”

Goodbye 232 on EU?

SMU asked: Would you be impacted if Section 232 tariffs were removed from the EU?

“No effect in the short term due to steel shortages and high prices in the EU.”

“No, there’s no steel to import from the EU anytime soon, so no impact till 2022.”

“I’m sure it would hurt the psychology of the market, but the overall impact would be muted for plate. There are still several countries that have AD/CVDs against them. Also, it seems like the EU is in a supply-short situation as well.”

“There would be implications. Inventories would become a liability at these high prices. Our country would still need a vehicle (quotas) to control imports.”

“If Section 232 tariffs are removed, it would make more steel available in the spot market at competitive prices.” 

“Yes, in theory imports would be 25% cheaper and well below domestic pricing. Some countries with mills that convert HR into CR and coated could have steel here quickly – say in six weeks.”

“Technically, we all would be impacted if Section 232 is removed against the EU, and imports to the U.S. rise in response. However, because the EU itself is enduring a steel shortage and record prices, I believe any actual impact will be delayed until they move into an oversupply situation. That doesn’t appear likely until later this year at the earliest.”

“It would have more impact in non-carbon products like stainless, aluminum and tool steel. Presumably prices would go lower. However, with an extremely tight supply environment on most products and difficulty getting products through ports, trucking, etc., there would not be a sharp immediate impact. If they are going to remove the tariffs on the EU, this is probably as good a time as ever, in terms of not hurting service centers like us who carry decent inventories.” 

Inflation a Threat?

SMU asked: Do you believe the high prices for steel and other commodities are a sign of inflation that poses a threat to the economy?

“Inflation a threat to the economy? Are you kidding me? Yes!”

“It depends on how things unfold in the coming months. There’s an acknowledgement (by the Fed and others) that we would experience a spike in inflation for a few quarters, in sync with a V-shaped recovery, as a reaction to the dramatic drop caused by COVID shutdowns. They’re counting on the market going through this phase and then returning to a more ‘normal’ rate once things settle down. If things ultimately move too far too fast, then the Fed may be forced to react sooner than they currently contemplate. So, I think in the near term it’s okay, but the threat does exist that inflation becomes a big enough problem to put a wrench in the recovery.”

“I am in the camp that this is more than just transitory. There is so much liquidity in the system, it’s hard to see how that will not have a longer-term impact.”

“In normal times, yes. But this is not normal. Governments are pumping money into the economy. I think we have more to worry about with stagflation.” 

“No, because the services sector is a much larger segment of the U.S. economy and might not see the same pricing pressures.”  

“A sign of inflation for sure, but it’s too soon to say if that poses a threat to the economy. With rates still near zero, the brakes might need the rust knocked off, but they should still work.” 

By Tim Triplett, Tim@SteelMarketUpdate.com