Final Thoughts
Final Thoughts
Written by Michael Cowden
July 26, 2022
We’ve updated our prices, and it’s another week of declines for hot-rolled, cold-rolled, and galvanized flat-rolled steel. That’s not new.
But this might be: Hot-rolled prices had been falling at a modestly faster pace than galvanized prices base prices. That was not the case this week.
HR is down $35 per ton ($1.75 per cwt) week over week. Galv base prices are down $45 per ton ($2.25 per cwt). That might be a trend to keep an eye on.
Why? HR price are no longer in “unprecedented” territory. We’re at $840 per ton now. Prices were significantly higher in the summer of 2018 following the initiation of Section 232 tariffs. They were ~$900 per ton in June-Aug 2018, according to SMU pricing records. That’s ~$1,060 per ton in if you adjust for inflation.
The same cannot be said of galvanized base prices. They were around $1,000 per ton in the summer of 2018, or ~$1,175 per ton if you adjust for inflation. That’s well below our current base price of $1,270 per ton.
HR can’t fall $35-50 per ton for much longer before we’re back to “normal” pre-pandemic price levels. Galvanized could. But will it?
I’d suggest keeping a close eye on the spreads between hot-rolled coil and galvanized base prices. Check out the chart below.
Spreads have been around $450 per ton recently. That’s more than double an average of approximately $200 per ton over the last five years or so.
Yes, the steel industry has consolidated a lot since 2020, especially with Cleveland-Cliffs’ acquisition of the former AK Steel and the former ArcelorMittal USA. But has it consolidated to a point where mills can enforce a $400/450-per-ton spread between HR and galvanized base prices?
Another thing worth considering is whether it’s even realistic to say that domestic mills have such power amid a weakening global market.
We’re told that steel prices continue to fall in Asia, Chinese hot-rolled coil prices included. China can’t ship directly to the US because of prohibitive duties. But low prices there put pressure on prices elsewhere in the region.
And recall that South Korea is subject to a Section 232 quota, not the 25% tariff most other nations face. Japan, meanwhile, has negotiated a tariff-rate quota (TRQ) with the US that largely removes Section 232 tariffs there as well. The Europe Union, facing a recession and an energy crisis, also has a TRQ.
Does this mean that tons from Asia and Europe will flood into the US? Not necessarily. But does it mean that import prices might keep a lid on domestic tags? That’s worth asking.
By Michael Cowden, Michael@SteelMarketUpdate.com
Michael Cowden
Read more from Michael CowdenLatest in Final Thoughts
Final Thoughts
Before we get whipsawed by the current moment, it’s important to reflect on optimism. Whatever happens, consumers are going to need steel.
Final Thoughts
Remember infrastructure week in Trump 1.0? It became a running joke. Because it was almost always derailed by whatever the scandal of the day was. In Trump 2.0, we've got tariff week. And unlike infrastructure week, tariff week is no joke.
Final Thoughts
That’s not to say Section 232 shouldn’t be tightened up. Or that certain trade practices – even among our traditional allies – weren’t problematic. But when it comes to the reboot of Section 232, I do wonder whether there will be some unintended consequences.
Final Thoughts
As February comes to a close this week, the scrap markets are poised for another – and perhaps more extreme – move upward in March. March is usually a month when scrap prices relent as winter’s impediments subside. That’s not the case this year. And this time, the driver of prices will be increased demand from mills along with restricted flows over the last two months.
Final Thoughts
The US steel market has whipsawed upward on the prospect of expanded Section 232 tariffs of 25% being applied to imported steel - including downstream goods - on March 12. It seems pretty clear that domestic steel mills have the ear of the Trump administration when it comes to Section 232. The result? The much-anticipated Trump bump has finally arrived - and then some.