Final Thoughts
Letter to the Editor: Accounting Is Not a Trick
Written by Tim Triplett
January 17, 2022
I was reading your Final Thoughts and appreciated most of your comments, but I have some major issues with the inaccuracy of this paragraph.
“Accounting tricks like inventory write-downs can help narrow the gap between a service center’s cost for steel and what a customer is willing to pay for it. But some losses are inevitable, at least until the price declines begin to plateau.”
(See Tim Triplett’s Final Thoughts on Jan. 16.)
Writing down the value of inventory before it is sold is not an accounting trick. How is recording a loss an accounting trick? Ignoring a loss is an accounting trick.
When a company writes down the value of its inventory, it is recognizing a loss before it is sold. If it buys a coil for $2,000/ton and it is only worth $1,500/ton at some point later on, it is required to recognize that loss at the time the market value is lower than the cost. If a company does not do this, it is overstating its income.
What many companies have done in the past is to ignore these market movements, hold onto the expensive coils in the hope the market would move back up, and flip new steel that it is buying closer to the market – making it appear they are making margin and ignoring the large losses that it has yet to realize in its inventory.
In markets that have had extended negative market fluctuations, this has killed off several companies when ultimately the old expensive inventory became too old to be eligible in the company’s borrowing base or had to be marked down.
By not marking its inventory down correctly, a company is reporting an inflated balance sheet, inflated borrowing base and an inflated income statement.
Service Center CFO
(Name Withheld on Request)
Tim Triplett
Read more from Tim TriplettLatest in Final Thoughts
Final Thoughts
It’s once again A Tale of Two Cities in the steel market. Some are almost euphoric about Trump’s victory. Others, some rather bearish, are more focused on the day-to-day market between now and Inauguration Day on Jan. 20.
Final Thoughts
One of the perhaps unintentional perks of being a trade journalist is the opportunity to travel and cover an array of industry conferences and events. Some I've attended have been at fun locations, like Palm Springs and Tampa, Fla. Others have been in more practical locations, like SMU’s Steel Summit in Atlanta and American Iron and Steel Institute (AISI) and Steel Manufacturers Association (SMA) meetings in Washington, D.C.
Final Thoughts
t this point in the game I think what we can say about Nippon Steel’s proposed buy of Pittsburgh-based U.S. Steel is that it will go through, it won’t go through, or the outcome will be something new and completely unexpected. Then again, I’m probably still missing a few options.
Final Thoughts
President-elect Donald Trump continues to send shockwaves through the political establishment (again). And steel markets and ferrous scrap markets continue to be, well, anything but shocking. As the French writer Jean-Baptiste Alphonse Karr wrote in 1849, "The more things change, the more they stay the same." (I thought the quote might have been Yankees catcher Yogi Berra in 1949. Google taught me something new today.)
Final Thoughts
President-elect Donald Trump will officially retake the White House on Jan. 20. I’ve been getting questions about how his administration’s policies might reshape the steel industry and domestic manufacturing. I covered the tumult and norm busting of Trump's first term: Section 232, Section 301, USMCA - and that's just on the trade policy side of things. It's safe to say that we'll have no shortage of news in 2025 when it comes to trade and tariffs.