Final Thoughts

Steel Market Update has revised our flat rolled Price Momentum Indicator to Neutral due to the price increase announcement by Cleveland-Cliffs. It is our policy to move to Neutral when a domestic mill makes a price announcement and allow the other mills to evaluate their positions and order books to see if they will follow along. Once we get a clearer view as to the direction of steel prices, we will adjust our indicator accordingly. For those unfamiliar with our Price Momentum Indicator, you can find more information on our website by clicking here. Prior to yesterday, the flat rolled indicators were all pointing toward lower prices.

Reaction to the Cliffs price announcement was mixed with the vast majority of steel buyers feeling the move was a bit premature.

When asked about the Cliffs announcements, a large Midwest-based service center told us, “Glad to see this, hopefully it will slow the market fall. Although there are still a lot of tons available and lots of imports hitting the docks, I believe the price announcement is a little premature.”

One of the commercial officers at a domestic steel mill provided this insight from their perspective: “Regardless of the price announcement, I still think the spread between hot rolled and coated will narrow a bit more, and imports of all products will remain muted in the latter part of Q2 and into summer. Not sure the price increase works immediately as mills are fighting for every ton right now, but the production cut [at Cliffs] accelerates the inventory correction. I would imagine other mills have similar situations. The next few weeks are mushy, but the outlook far rosier in a couple of months.”

When speaking to an end-user about how they are seeing the markets, they were concerned about the rapidly rising steelmaking input costs and the rising prices and availability on foreign steel. This company is of the opinion there could be a much larger supply issue brewing, but the question is on timing. “In the end, this market will have over corrected down and then bounced back to a degree. The only question left will be how long the bounce will last before supply side fundamentals force the market into more of an equilibrium.”

An automotive service center supplier told us, “My opinion of them jumping the gun is even stronger. Especially for those of us involved in automotive. Things are steady and getting slightly better each month, but I don’t know of anyone that has or wants to do large spot buys right now, either because they can’t or are just not comfortable yet with demand. We are still far from running at a “full clip” on the production side. At the southern plants [their service centers located in the South] that are more construction-related, we can start to lay some stuff in. But in order for a price increase to stick, we need auto and we need to get into Q2 where the imports will back off. Just my opinion, obviously, but they should have done that in a month. Then the chances would have been better.”

Several contacts made comments as to the large price spread between hot rolled and coated products. A buyer of galvanized steel told me this afternoon, “We applaud the efforts of Cliffs to put a bottom in the market. Mill order books do seem better this month over last, however lead times are still very short and import product is still flooding the ports. And, of course, everyone is watching the spread between hot rolled and coated – still waiting for coated to adjust back some more. No one has followed yet, but perhaps in 45 days the market will be ready to put in the floor.”

The Cleveland-Cliffs announcement is not the only news the steel markets are dealing with today. The actions of Russia against Ukraine could have far-reaching implications for the domestic steel industry. Both Russia and Ukraine are major suppliers of low-phos pig iron to steel mills around the world, but especially to the EAF mills here in the United States.

According to one of my pig iron sources, the U.S. imports 4-6 million metric tons of pig iron on an annual basis. With the new EAFs coming online, the expectation is for the number to increase to 7-8 million metric tons.

As of this writing, my understanding is that the U.S. government is advising U.S. companies they cannot do business with the Ukrainian areas now being occupied by Russia. There is a major pig iron supplier in one of those regions.

The other country that can produce (albeit not in a green way) low-phos pig iron is Brazil. However, the country is only able to produce 120,000 metric tons per month, and they have been closing several of the high polluting plants. Plus, the U.S. mills have to compete with China for this material.

I was told current pig iron prices are $610-620 per metric ton, NOLA. The expectation is for pig iron prices to move higher if the Russia/Ukraine issue remains.

We will have to wait and see how the sanctions impact pig iron exports as well as slab exports to the U.S. steel mills.

At the same time, scrap prices are expected to rise $20 to $50 per short ton. I was told of recent sales in the Ohio Valley of $600 per short ton on busheling.

It seems like lately we live in a world full of Black Swan Events….

For those who are interested, 428 executives attended the Tampa Steel Conference representing 253 individual companies. The speakers were well received. I think the expanded program was appreciated, as were the various networking events. We will continue to work with our Port Tampa Bay partners to make the event a signature conference for the industry. The dates for next year’s conference are Feb. 5-7. Please make a note on your 2023 calendars.

I am working on the program for the 2022 SMU Steel Summit Conference which is scheduled to be held in-person on Aug. 22-24 at the Georgia International Convention Center. We have already sold 95% of the sponsorship spots available, and we anticipate a full exhibition area. The goal for 2022 is for 1,200+ attendees, and we are working toward providing a networking/informational experience second to none. Registration is open and can be accessed by clicking here. You will need to register to get a link to the hotel registration. We expect all four hotels to be sold out by May or June.

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John Packard, Founder