Final thoughts

Ethan Bernard has a good writeup of the call here. As for comments potentially about Steel Summit, here they are:

“I feel like we are back in the COVID year, when everybody believes that after a horrible quarter in terms of pricing, everything would be a lot worse in the next, my gut tells me that things are about to turn,” Goncalves said.

“And once again, these buyers that will be chit-chatting in a conference very soon about how good low prices are and how smart they are because they keep pushing prices down. They are setting themselves up for a big surprise. So prices will be starting to go up as soon as we see the very minimal spark that will allow prices to go up,” he added.

With 1,100 and counting!

Goncalves made the comments during an earnings conference call with industry analysts, and we appreciate the (possible) shoutout.

Approximately 1,100 people have already registered to attend Steel Summit. Many of them are steel buyers. But we’ll have folks from across the industry there too – from recyclers, service centers, and fabricators to mills, OEMs, and the financial community. You can find a list of attending companies here.

You can join us on Aug. 26-28 at the Georgia International Convention Center in Atlanta by registering here. We welcome everyone – regardless of politics, where you are in the supply chain, or whether you think prices will go up, down, or sideways.

You can also check out the latest agenda here. And those of you who have already registered can begin networking through the conference app.

As far as the steel market goes, SMU is not in the forecasting business. But we can note some trends to watch.

“Things are about to turn” (up)

If your gut is telling you that prices are set to bottom out and turn up, there is data to support that.

For starters, US HR prices have dipped below foreign HR prices. In the past, that’s been a relatively reliable indicator that domestic prices are poised for a rebound.

Also, scrap went mostly sideways in July after falling for the last six months. And most respondents to our most recent survey think that prime scrap will be sideways or up in August.

In addition, flat-rolled steel imports started to trend lower in June. And based on channel checks, we would expect that trend continue into July.

In fact, most traders tell us that they are seeing a decrease in business from their North American customers. And more than half of service centers tell us that foreign prices are no longer attractive. (All of that is in our latest survey results, which are available to premium subscribers here.)

Here is the last one. And it’s a little counterintuitive. Nearly 85% of service center respondents tell us that they’re lowering prices. They’ve been doing so along with domestic mills. This is what our founder, John Packard, called the point of capitulation – when buyers are just as eager as mills to see higher prices. Because no one likes to see inventory losses over such a long period.

In the latter half of Q3 of last year, for example, we saw more than 83% of buyers reporting lowering prices. Come Q4, and mills were announcing rapid-fire price increases, according to our price announcement calendar. (The dynamics of the UAW strike of course played a role there too.)

Or “a lot worse”?

Frankly, I don’t see a lot of data to support things getting a lot worse. The upside risk is probably more than the downside risk, especially when it comes to HR. But there are no obvious sparks to send prices higher again.

For starters, buyers tell us nearly all mills are still willing to negotiate lower prices. Lead times are short. And service center inventories (as our premium subscribers already know), remain a little on the high side. That’s not a recipe for urgent restocking.

Meanwhile, steel output continues to rise, new capacity remains slated to come online, and buyers are mixed on demand. Some have noted that July was better than June. But even if volumes have improved, they’re still seeing margin compression – which might explain why we’re seeing so many report that they’re missing forecast. (Nearly 40% in our last survey, the highest since we started asking that question in January 2022.)

A big surprise?

We haven’t seen any significant outages or idlings to date.

Cliffs has said it won’t take down capacity. It’s not clear whether U.S. Steel can with its potential acquisition by Nippon Steel pending. Also, both companies need the support of the USW in their respective deals. (Cliffs in its acquisition of Stelco.) An idling wouldn’t be the best way to curry favor with the union.

That’s why any big idling or outage would come as a surprise.

Or maybe the drop in production could come from somewhere else. Take the strike at ArcelorMittal Mexico. It dragged on for nearly two months. And there continue to be labor issues there, even if the strike was officially resolved. Certain mills in the US depend on slabs from ArcelorMittal Mexico. What happens, for example, if those supplies run low?

Then there is the possibility of trade action. There has been talk for some time of a trade case against coated products from Southeast Asia – and from Vietnam in particular. I’ve been told that any such case hinges in part on the outcome of a case – expected soon – concerning whether Vietnam is what’s referred to as a “non-market economy.”

I’ve also been told that any trade petition might in addition hinge on US mills having a better case to make claims of “injury” from imports. That’s been tough to argue over the last few years amid record or near-record earnings. But as mill earnings have dipped this year, the case for declaring injury from imports might have increased.

And then there is the notion, alluded to by Cliffs, that whatever the catalyst might be is probably unknown. Few people saw the pandemic coming or the war in Ukraine. Or, on a more pedestrian level, AHMSA shutting down or the sharp bounce back following the UAW strike. What’s something that we’re not paying attention to now that perhaps we should be?