Final Thoughts

I don’t recall much criticism for being too optimistic when prices were rising. But they would have risen whether I’d written a word or not.

Remember the snowstorms in Texas that sent prices soaring in February 2021? Or what about the war in Ukraine that sent them skyrocketing earlier this year? I had nothing to do with either. So just a friendly reminder not to shoot the messenger.

That said, it’s not as if this doesn’t happen somewhat routinely when prices drop. I remember being confronted by a steel mill executive at a conference around this time in 2015. He insisted that hot-rolled coil prices were not as low as we were reporting at the time. And then stormed off.

One of his customers happened to be next to me. He waited a minute and then told me that, well, in fact they were that low – and from that mill too.

One rarely gets that kind of immediate affirmation. And prices continued to fall throughout 2015. Certainly not because I wanted them to. SMU might not be buying and selling steel, but our fortunes ride the ups and downs of the steel industry too.

In any case, I’m not in the forecasting business. I won’t predict how far or how fast prices will fall – or when they might rebound. And I don’t envy those is the forecasting business for what is an increasingly difficult job. There are so many variables that we’re not used to thinking about – a pandemic, a war, inflation. And who knows what the next surprise might be?

But I can also say with absolute certainty that prices won’t fall forever, just as they never rise forever either. So let’s not get too gloomy. Do we get below $1,000 as we did pre-Ukraine war, and does that cause integrated mills to idle blast furnaces? Maybe. Let’s also keep in mind that mills are still making a lot of money at current prices. And they will be even if prices continue to fall. Why would they stop making money?

I’ll just reiterate what I’ve said before. Based on what we know today, there are no immediate catalysts for higher prices. Scrap prices are expected to fall this month, import prices have moved lower, domestic mill lead times are shorter, and new EAF sheet capacity will be a bigger factor in the second half of the year. How does any of that equate to higher prices?

There was a hot minute after the initial outbreak of the war in Ukraine when people were talking about US exports to Europe. Recall that was when costs ballooned because of the war, and Europe felt the impact most immediately. Now, partly because of the war, European economies are slowing down. Could we see European exports to the US become a focus of domestic mill ire in the second half? Maybe. I wouldn’t write off the possibility with European prices falling quickly and the EU no longer subject to 25% Section 232 tariffs.

And how will the US react to the use of Russian coils or semi-finished goods (not just slabs but blooms and billets too) elsewhere? That’s not a question for the European market, which has halted the steel trade with Russia because of the war. Not directly anyway. But it is a question for East Asia, South Asia and Turkey, where I’m told Russian steel continues to flow – and at a significant discount. Maybe we see a new round of circumvention cases? Or do we accept that markets find a way around trade barriers over time? The answer to both of those questions can be ‘yes’.

A trader source told me he thought it was only a matter of time before prices in the US, at least for large buyers, dropped below $1,000 per ton given price declines in the rest of the world. And he said that could happen sooner than people expect. But he added an important caveat, one we all learned following the overnight invasion of Ukraine: “The crystal ball today could change instantly tomorrow.”

Upcoming SMU Events

Steel Market Update conducts our Advanced Steel Hedging: Strategies and Execution Workshop only once or twice a year. Our next will be virtually on July 12-13 (a half day each) with instructor Spencer Johnson of StoneX. This workshop is for those who have some knowledge of steel hedging but want to learn more about how to use the tools available to protect inventory values, margins, or long-term pricing deals. You can learn more about the workshop agenda, our instructors, costs to attend, and how to register by clicking here.

We are also conducting one of our virtual Steel 101: Introduction to Steel Making and Market Fundamentals Workshops on July 19-20 (full day each day). We have taught over 1,000 executives associated with the steel industry over the past 10 years. This course is an excellent way to learn about the steel-making process from those experienced in the field. We also discuss what impacts steel prices. The course qualifies for 11 hours of training, which can be used toward your ISM Certified Purchasing Manager (CPM) recertification credits. You can learn more about our program, instructors, costs to attend, and how to register by clicking here.

By Michael Cowden, Michael@SteelMarketUpdate.com