Final Thoughts

That’s an aggressive price. It remains to be seen whether mills will collect it. What’s interesting to note is this: In a prior round of price increases, one following Thanksgiving, most mills announced a $60-per-ton hike. Only one, AM/NS Calvert, announced a target base price ($700/ton).

Cliffs put both figures in the same price announcement. Does this mean we can expect to see mills announce both a price hike amount and a target price from here on out? Will those target prices have credibility? All food for thought.

The next obvious question: Will this second round of price hikes stick? Time will tell. But I think it’s safe to assume that the second will ensure the first round is collected – and then some. Mills think momentum is on their side, and they rarely waste a chance to raise prices when they think that.

Keep in mind, too, that costs are up as well. Cliffs is primarily an integrated mill, and integrated producers are traditionally thought to have higher costs. But costs for EAFS are increasing as well.

I think of EAFs’ primary costs as scrap, electricity, and labor. Prices are inching higher for all three. So higher prices aren’t just greed, they’re also need. (Yes, electricity costs have moderated slightly since September. But they’re still way, way above anything we’ve seen in prior years.)

We can debate all day whether 2023 demand will support these higher prices. But that might miss the point in the very short term. Some mills that had been offering discounts as recently as last week are no longer doing so. Buyers might realize that they missed what turned out to be the bottom of the market. They might also reason that now is as close as they’re going to get to that bottom.

Demand might not be what it was. But it hasn’t fallen off a cliff, either. And it’s axiomatic that you can’t sell from an empty shelf. So why not stock up if you think prices are as low as they’re going to get for the next little while?

It also remains the case the contract deals – typically done on a CRU-minus basis – are more favorable in 2023 than they were in 2022. Maybe the bottom for sheet prices was before Thanksgiving. But guess what? You might have had CRU minus 2-3% with lead times still in 2022. Sure, prices are $50-60 per ton higher now. But with lead times into 2023, you’re at CRU minus 6-8%. That’s not a bad deal.

Point is, I think we could see a short-term burst of buying activity from people who think we’re past the bottom and going up from here – at least for a few months. I’m making no prediction about demand. We’re in an industry that often buys at the same time and stops buying at the same time – sometimes regardless of demand. Is that rational? Perhaps not. But the market is often irrational. And I don’t see that changing anytime soon.

By Michael Cowden, Michael@SteelMarketUpdate.com