Final Thoughts

I learned early on in my steel career to never forecast steel prices any further than 30 days into the future. The steel industry has always intrigued me (and probably you as well), and it has been the swings in pricing that keep me glued to this industry. Even as I get past normal retirement age, the glue provided by uncertainty keeps me tied to the industry.

Making bold predictions as Timna Tanners did a few years ago when Bank of America trademarked “Steelmageddon” comes with the risk of being wrong. Timna spoke with unbridled optimism during a recent SMU Community Chat Webinar (click here if you would like to watch a recording) about the markets and why her theory has only been pushed out and not replaced.

Timna is now forecasting prices in 2022 to hit $600 per ton ($30.00/cwt). Tanners told me earlier this week she anticipates $800 per ton ($40.00/cwt) hot rolled sometime during fourth-quarter 2021. There may be some adjustments to her numbers over the coming weeks. We will have an opportunity to hear from her in person at the 2021 SMU Steel Summit Conference in Atlanta (Aug. 23-25) as she and Josh Spoores from CRU unveil their updated steel forecasts for the balance of 2021 and all of 2022. You can join us in Atlanta (or watch virtually from your home or office) by clicking here to register for the conference.

In Timna’s defense, I must point out that when she made her original forecast and trademarked the Steelmageddon name, there were three integrated steel mills in the United States (we now have only two), and a number of U.S.-based mills had announced new capacity (plus Ternium in Mexico). U.S. Steel had not yet closed Great Lakes. The furnaces were all running at AK Steel, ArcelorMittal USA and U.S. Steel. There was no sign of a pandemic, and no one had any idea how COVID-19 would change the world we live in. A lot has changed since then.

One reader who watched the webinar took exception to the assumptions being made by Tanners and others who believe steel prices will “crash” either later this year or early in 2022. Here are some of the points this company contends will allow this price cycle to continue longer than many people think. (SMU has no position on future pricing; for that we defer to Josh Spoores at CRU):

• Mill outages are being downplayed, which is a mistake. Taking an outage during a steel shortage is a big deal.
• Consolidation is being downplayed, which is a mistake. Lourenco Goncalves is a more experienced and “smarter” manager than what was there prior to consolidation.
• History does not always repeat itself. (SMU note: We are already breaking historical trends with both the length of the cycle and the high price levels).
• Buyers are reporting they cannot get enough steel through the balance of 2021.
• Who is to say what the price of steel should be? Customers are paying service centers these high prices. Were the mills just being foolish in the past by not charging more?

Prices are always about supply and demand.

There is new flat rolled supply coming on late this year (the SDI Texas facility with about 3.5 million tons) and early next year (about 800,000 tons from expansion at North Star BlueScope). However, those tons will not replace the approximately 5.5 million tons that has been removed from the market by U.S. Steel and Cleveland Cliffs.

The big question is Section 232 and what the negotiations between Europe and the United States will mean longer term for the tariffs. Once removed, how much foreign steel might be focused on the U.S. market (or is Europe too busy for us right now)?

I spoke with the owner of a medium-sized service center this morning who told me, “the last 10 months have shown us predictions are not easy things.” He went on to say that prices would start to change, “when things catch up, and the mills need orders.” At that point, he said, “things could go down dramatically.” He pointed out that the cost to produce hot rolled at an integrated mill was around $600 per ton. Even at $1,000 a ton, the mills would be “printing money.”

Is the conversation about a “peak” in the market a bit premature?

The general manager of large service center told me this afternoon, “I think the market needs to be aware of getting lulled into thinking we’re seeing the peak now or soon. With the auto manufacturers forced to reduce production in Q2, it created an opening for the mills to refill their auto supply chains internally. That internal mill restocking process appears to be complete as mill processors and storage warehouses report they’re at restored levels of mill inventories destined for automotive. As a result, mills have some short-term availability, which they are offering. But they see this as transitory because the automakers are already beginning to increase production with the arrival of chips. Then, we have increased steel imports in the period of April through July/August, which is providing some levels of relief. Lastly, weekly U.S. mill output has increased incrementally over time, but recent additions are more likely tied more to non-flat-rolled mills, which have been running full out for some time. Once automotive kicks into higher gear, combined with an expectation for lower imports beginning in late summer or early fall, we could see the market surge once again. On top of this, all of the postponed mill maintenance projects will need to be completed in the fall, which will reduce availability further. Caveat Emptor.”

Listen, the SMU Steel Summit Conference is going to be the venue where all of these subjects will be discussed: steel prices, supply and demand, new production capacity, Section 232 (and what comes next once 232 becomes history), Steelmageddon, the business cycle, forecasts for automotive, energy, construction, steel and scrap prices and more, transportation issues, electric vehicles and steel, decarbonization and what to plan for in your business. If you have not yet considered attending, now is the time as hotel rooms are booking up, other sales/purchasing people are making appointments for dinner/meetings, etc., and the list of attendees keeps growing. You can learn more on the SMU Steel Summit Conference website: https://www.events.crugroup.com/smusteelsummit/home

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

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