John Packard Discusses Steel Prices, Inventories & More

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I was speaking with the head of commercial for one of the domestic steel mills yesterday, and he mentioned that the mill has had no offers to buy large blocks of tons at discounted prices for end of the year production. He found this to be quite unusual.

With “normal” spot prices on hot rolled coil being in the range of $1,600-1,700 per ton (according to the mill exec I was speaking with), there does not seem to be a level low enough to entice steel buyers to get off their hands and buy large tons. This steel executive told me he was aware of foreign hot rolled at prices around $1,300 per ton, CIF Duty Paid, Loaded Truck, USA port. That spread between foreign and domestic is pointing toward a major move lower for domestic steel mill pricing.

The spread between foreign and domestic is producing “foreign fighter” pricing out of a few of the domestic steel mills. I spoke with a service center buyer who told me his company has been able to procure tons close to foreign prices from domestic suppliers.

When it came to small day-to-day spot pricing, the comment made was “normal” spot tons were closer to $1,600 per ton. Other buyers are disputing numbers less than $1,600 per ton. They have told us the lowest numbers they have seen are closer to $1,680 per ton. My opinion is prices will move to the $1,600 per ton level (and potentially below) in the coming days or weeks.

The drop in HRC has caused the spread between hot rolled and coated to become bloated. We will need to watch this carefully in the coming weeks. Ten years ago, a $200+ per ton spread would be unheard of. However, over the past few years we have seen the spreads expand and contract. From an old steel guy perspective, the average base price spread between hot rolled and coated steels used to be closer to $100-$140 per ton.

Another interesting item to consider. The foreign tons coming into Houston are priced so far below domestic tons that southern service centers can compete farther north, which is putting pressure on service center spot prices.

Inventories are rising, spot prices are dropping (albeit at different paces depending on the mill), and foreign steel is arriving today around $1,400 per ton – with new offers about $100 per ton cheaper than that. Foreign buyers are starting to tell me even $1,300 per ton or slightly below may not be good enough to garnish orders for March/April deliveries.

All of this is making steel buyers a little queasy as they try to make buying decisions. My expectation is for buyers to begin sitting on their hands on those products where inventories are balanced or high.

Demand continues to be robust within most market segments. Even automotive, which has had its issues with production due to limited chip supply, has seen mill shipments remain steady as buyers want to take advantage of the 2021 contract prices. The expectation is for the new 2022 contracts to go out at minimum tonnage levels due to the higher costs associated with that material.

It’s a fun time to be in the steel business. (Of course, any time the industry is “fun” usually means it is also scary as all heck.)

Many companies are celebrating record annual profits in 2021. If you would like to build some business expenses into this year, I would recommend registering for the Tampa Steel Conference or one of our steel training workshops.

The Tampa Steel Conference is not a huge expense. (And you can always send multiple people to get the deductions up.) It will be held on Feb. 14-16, 2022, in Tampa, Fla. The actual “meat” of the conference will be on Tuesday, Feb. 15 and all-day Wednesday, Feb. 16, should you have Valentine’s Day concerns. (You could also bring your significant other with you to Tampa.) You can register by clicking here.

We will host a virtual Steel 101: Introduction to Steel Making & Market Fundamentals Workshop on Jan. 11-12. You can learn more about this workshop’s agenda, instructors, costs to attend, and how to register by clicking here.

Our first live, in-person Steel 101 workshop will be held in Memphis, Tenn., and will feature a tour of the Nucor Arkansas steel mill. This workshop will be held on April 20-21. It is currently not available for registration as we are working on confirming the hotel in Memphis.

We will also have our first “in-person” Introduction to Steel Hedging (previously called Steel Hedging 101). That will be held in conjunction with the Tampa Steel Conference. The workshop will be at the Marriott Water Street Hotel in Tampa, Fla. The workshop will begin in the afternoon on Monday, Feb. 14, and will continue during the morning of Tuesday, Feb. 15. Workshop attendees will be invited to attend the Tampa Steel Conference networking cocktail party, which will be held on Monday evening at the hotel. However, the workshop is separate from the Tampa Steel Conference. (In other words, you do not have to attend the Tampa Steel Conference in order to attend this workshop.) You can learn more about the agenda, our instructor Spencer Johnson of StoneX Financial, and the costs to attend by clicking here.

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

John Packard