Final Thoughts

• SMU Steel Summit Conference = 43 days (Aug. 22-24)

• My Retirement = 53 days (Sept. 1)

Over the past few days, I reached out to several of my close steel contacts. I asked them three questions:

(1) What is happening in the market now?

(2) Where do they see steel prices by the time we reach our steel conference in August?

(3) How are they seeing the overall supply/demand situation for the balance of 2022 and the first half of 2023?

Market Conditions

The steel buyers I contacted had mixed emotions regarding current market demand. Some reported lagging demand, others said it remained intact. The real question on just about everyone’s mind was how much demand will weaken in the weeks and months to come.

“On demand front, things seem to have weakened recently for sure,” a source at a large service center in the Midwest told me. “It’s difficult to determine if this is seasonal, buyers going to minimum with falling prices, or actual reduction. There’s a higher level of negative sentiment, fed in part by the higher inflation and fears of a recession, and that’s taken hold more broadly.”

A distributor in the Southwest had a somewhat different take. “The market has remained relatively steady, with both questions about future demand for auto and housing causing concern, while hope for energy and infrastructure are still not being felt. Demand volume, or a lack of demand, will be the most important factor for how long and far the current domestic steel market normalizes or corrects,” he said.

“We’re thinking the market will ease through most of the second half with periodic bumps along the way. Demand and not supply will most heavily weigh on market pricing, as the domestic mills will continue to limit production for the most part and imports will struggle to be a factor with domestic pricing continuing to be under pressure,” the Southwest source said.

Here is what a source at a manufacturing company told me. “Current market conditions are driving to find a balance that doesn’t currently exist. … Futures are projecting below healthy integrated mill transaction costs. What does that mean? I guess we’ll all find out soon enough as the Fed wrestles with arriving too late to the party (again) and will likely overreact (again).”

From the Southeast we heard this from a service center buyer, “I don’t think I can say anything that others haven’t said already. Lots of quoting activity. But customers are not buying until the last-minute, thinking that if they order next week the market will be lower. We are also starting to see demand slowing a little. Forecasts not being met by our customers.”

A steel mill representative told me this: “There is little spot activity at this time. Although the OCTG/spiral pipe market is strong, construction and service center business is flat to down. The weakest of the flat rolled products is CRC.”

Supply/Demand

SMU recently hosted one of our SMU Community Chat Webinars with Timna Tanners of Wolfe Research. (Tanners is also a speaker at this year’s Steel Summit Conference.) There is too much supply coming onstream, and it will overpower demand – driving prices lower, Tanners said. Are we finally at the point where the “Sheet Storm” comes home to roost? We will probably know more by late August when we all meet again in Atlanta for our conference. In the meantime, here are some of the comments I got from steel buyers.

“Mills are hand-to-mouth for orders, and the EAFs are not operating anywhere near full, with multiple ‘off-shifts’, running on one caster, etc.,” the Midwest service center source said. “This has become a more pronounced problem for the mills now, as many are in the process of trying to increase output, given the new added capacity they’ve invested in. Even if mills cut output in the hopes of getting supply/demand in balance, they may find themselves still dealing with oversupply conditions, if real demand weakens in the near term. That would likely lead to more draconian cuts being needed to right the ship.”

“Supply and demand can’t balance if the economy is moving in one direction and new melt capacity is driving in the other,” said a steel buyer with a manufacturing company. “Both need to be in tandem for market pricing to reach a point of parity. … We’re not there, and capacity increasing without demand to compliment it is not a healthy situation. To pin a number assuming no changes, a reasonable person would have to believe that this market is capable of going sub-$800 (per ton). And at the current rate of decline, that would be in weeks, not months.”

A Southwest service center pegged pricing at the end of August at $800-$900 per ton on hot rolled and $1,150-$1250 per ton (base price + extras) on cold rolled and coated products. Regarding supply/demand I was told, “Again, this is the big question as supply can only contract so much, so how far the economy sinks will be the key factor for how this equation balances and when. I’m worried that if the economy continues to falter, we could see oversupply prevalent through the first half of next year. But I am hoping we’re a bit more resilient than that. Don’t know that anyone is going to go long on inventory any time soon.”

Where Will Prices be During the SMU Steel Summit Conference?

The top commercial executive at a domestic steel mill told me, “The conference timing is interesting. I believe the pricing readjustment window is August 15 to September 30. So, 22^nd of August could be interesting.” He went on to predict hot rolled pricing at $780-$840 per ton.

From a manufacturer’s perspective, “Flat-rolled steel prices by the end of August? I don’t know and am not exactly in the prediction business. But predicting direction is more the thought, and the current direction is down – and there is also not a floor in sight, yet.”

Most of the prices referenced for benchmark hot rolled in late August were $800-$840 per ton.

Of course, we will have an interesting debate in Atlanta on August 22-24 as we bring economists, analysts, consultants, as well as buyers and sellers of steel together to discuss price forecasts through the balance of 2022 and into 2023.

Interesting Comments

A steel buyer at a manufacturing company told me: “Now in my 38th industry year, I can’t recall a market ride like we’ve been on over the past four years. As you and I have traded war stories over the years, in the ‘90s we used to set pricing collars at +/- $10/ton, and that collar was usually good for the year. Today, a $10/ton pricing collar would be laughable to say the least and might only be good for the day.”

He went on to point out some of the reasons behind ballooning steel prices and the loss of a “reasonable” collar of $10 per ton: “Expiration of the VRA’s in 1992 was challenging, but nothing like this. The (Asian financial crisis) in the late ‘90s was nothing like this. The big round of dumping duties in 2002 was nothing like this. I could go on, but the aftershock from those events lasted for months, not years. Introductions of Sections 232 and 301 have left a huge mark on the world, not just in the US. Goncalves’s consolidation effort in 2020 made a huge impact on the world steel market, not unlike Wilbur Ross’s creation of ISG had 20 years ago. Then there is the Covid effect, and who in the world could have possibly imagined that every economy in the world would literally shut down – for months?”

Cleveland-Cliffs Inc. chairman, president and CEO Lourenco Goncalves will once again do a fireside chat at this year’s Steel Summit Conference. You can find more details about the conference and how to register by going here. 

My time is running short here at Steel Market Update. I invite you to interact with me, which you can do by sending me an email at John@SteelMarketUpdate.com. Or go to my personal email address, which is johnpackard2021@gmail.com.

I am looking forward to hearing from you over these next 52 days, and I hope to see you at this year’s SMU Steel Summit Conference.

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

John Packard, Founder