Final Thoughts

Could there be any more October surprises in store for us and for the steel market?

Tariffs and duties galore

If you listened to some recent campaign rhetoric, it might sound like there could be a series of them. Former President Donald Trump has said that, if re-elected, he might impose 50% tariffs on all imports. And perhaps three- or even four-digit tariffs on vehicles imported from Mexico. That would come on top of sweeping tax cuts.

Can he do that? We learned in Trump’s first term that the king-like powers US presidents have in trade matters can be used not only to create trade deals, as was originally envisioned. They can be used to break them too. We also learned that Trump wouldn’t hesitate to catch even the domestic market by surprise. That’s what he he did in the spring of 2018, when he hit US allies and foes alike with Section 232 national security tariffs.

Zekelman, like Trump, thinks that such measures will promote growth by bringing manufacturing jobs back to the US. And that the growth from that, combined with revenue from tariffs (even if they’re eventually negotiated lower), should fill in any budget holes left by tax cuts. More than a few mainstream experts would disagree with that calculus. But I think one thing we can all agree on is that such measures are not riding to steel’s rescue in the short term.

On a basic level, the next US president won’t be inaugurated until Jan. 20. And even more standard trade measures – like the AD/CVD case on coated sheet – probably won’t have a big impact until late Q4’24 or early Q1’25.

What happens in the meantime?

One theory: Prices remain sticky

I’ve heard from some buyers who are fishing for hot-rolled coil (HR) around $600 per short ton (st). And I’ve also heard from mills who have received those offers but aren’t willing to go that low.

Part of this is a regional story. In general, we’ve seen lower prices from certain mills in the Midwest and Canada. That comes even as EAFs in the South are trying to hold roughly around Nucor’s published price of $720/st.

One mill source told me that prices were sliding from the $700s/st to the $600s/st and that volumes were less robust than just a couple of weeks ago. But if there is one area where volumes are up, it’s the number of buyers “coming out of the woodwork” and angling for year-end deals, he said.

“They are looking for $30-31 (per cwt), skipping everything in between. There seems to be an expectation that domestics mills do, or will have, availability for late November and all of December,” he said.

Such buyers think that the market has gotten softer. He said his company couldn’t support such low numbers. “My sense is actual demand is the same as it was the last month. And inventories are being drawn down a bit. But the perception is that mills will be hungry. Because they will come out of maintenance and have more tons available,” the mill source said.

One end-user source was on roughly the same page. Certain mills have been slow to come out of maintenance. And he reasoned that while prices might continue to come down, they won’t collapse as they have in past cycles.

“You can’t have a crash. We’re not at some crazy high number where a couple of hundred come out of it,” he said.

And what comes down will eventually rise again. “Everyone is getting out at the same time. Everyone will come back at the same time. It’s the herd,” the end-user source said.

Another theory: The year-end deals cometh

But not all buyers are on the same page. One Midwest service center source said it’s not just perception that mills are hungry. “The North has been cheaper for a while. … And what’s going to change? Outages are complete. Lead times are at year end. And demand is not better – it’s significantly worse.”

As for $600/st, he said, “We’re all fishing for it. And someone is going to blink. It’s a (healthy) margin. And it keeps turning the wheel turning on your mill.”

Another Midwest service center source agreed. He ticked through the markets his company served. He said automotive (at least among some Detroit-area automakers) was slow, as was agriculture, and truck trailer. He described construction as a “mixed bag” – strong in some sectors, weaker in others.

Turning to the galvanized market, the second Midwest service center source said base prices as low as $860-870/st were readily available for even smaller spot orders. And he questioned whether prices in the low $800s or even high $700s might soon be in the market. That would track roughly with the $200/st spread mills have tried to maintain between HR and base prices for tandem products.

He wasn’t personally aware of spot numbers like that. But he said he’d seen revised contract terms that achieved roughly the same effect. “With some of the mills, rather than lower the (spot) number, they are saying, ‘OK, you have a max of X (contract tons). And you can now have X+ with a 6-8% discount.”

Note that 6-8% is a standard contract discount to spot prices.

“But who wants to load up on steel in November or December unless you’ve got a great deal?” he asked. “We are pretty convinced that this party is over.”

Tampa Steel Conference

Speaking of the winter months, don’t forget to reserve your spot away in the Florida winter sun. The Tampa Steel Conference, which SMU does together with Port Tampa Bay (PTB), will be back and better than ever on Feb. 2-4, 2025. You can learn more and register here.