Final Thoughts

The Trump 2.0 cheerleaders see the potential for tariffs to transform the marketplace and improve both prices and demand. They’re also jazzed about the prospect of lower taxes, fewer regulations – and perhaps more drilling, fracking, and pipelines too. Hell, in some corners, there are hopes that President-elect Trump might “slam the door” on trade with Mexico.

You could make a case that gains in steel equities reflect that bullishness. You might also reason that such “animal spirits” are behind chatter about potential mill price increases.

SMU and our parent company, CRU, have some good coverage suggesting that Trump 2.0 could be good for steel. No doubt more news will come fast and furious soon after Inauguration Day. And we’ll keep you apprised of new developments as they unfold.

Trump 2.0? Meh.

But for some of you, Trump headlines are mostly background noise. You’re more focused on contract negotiations and where prices might go over the next two months.

And with the boom times of the last few years over, you might be a little annoyed that contract talks appear set to drag past Thanksgiving and into December. With margins slim, everything feels like a more protracted negotiation this year – whether that’s your contract discount, min-max, extras, or freight.

You’re also a little perplexed about why there is so much bullishness. Because you don’t see any big changes when it comes to fundamental factors like increased domestic capacity (e.g., BR2 is still ramping up), flat/soft demand, and elevated steel inventories.

What SMU data says

Preliminary data from our most recent steel market survey shows that lead times are mixed. And steel buyers tell us that most mills – despite publicly touting higher prices – remain willing to negotiate lower ones. (Editor’s note: We’ll release full survey data on Friday afternoon to our premium members. If you’d like more information on upgrading from premium to executive, please contact my colleague Luis Corona at luis.corona@crugroup.com.)

Are big volume deals for hot-rolled (HR) coil for less than $600 per short ton (st) out of the market? It looks like it. But are buyers being charged the $750/st that mills insist they are selling for? Some of you on the service center and distributor side tell me that you could make good money selling what you have in inventory at the prices mills say they are at.

You think any additional mill increases aren’t a bullish signal. They’re more about mills making it clear that they can’t continue to accept orders at prices that are generating profits per ton in the single digits.

And while tariffs might drive higher prices later in 2025 (a big if without knowing the details), it’s not clear to some of you what the catalyst might be for a significant upward move in the short term.

That more bearish outlook (or realistic, depending on your view of things) is arguably reflected in the HR futures– where prices have been rangebound between approximately $700-800/st from December through March. (We’ve seen similar results when we ask folks where they think HR prices will be two months from now.)

On the raw materials side, domestic scrap prices have been mostly flat for months. And the export market – which we’ll have more coverage of in our Sunday issue – doesn’t offer much reason to think that December will be much different.

Also, and as our premium members already know, service centers’ sheet inventories remain high. (Another reminder to ping Luis if you’d like to upgrade!) As you can see here, low inventories in 2H 2020 drove prices higher even as sentiment remained bleak. It was the reverse in 2H 2021, when high inventories sent prices lower despite bullish sentiment. And we’re looking a lot closer to the back half of 2021 now than the back half of 2020.

What leading automotive and construction indicators say

Let’s also look across two key end markets: automotive and construction.

East of the Rockies, automotive is the most concentrated market for steel. Yes, new vehicle sales remain on firm footing. But automotive inventory levels are on the rise. They stand at 85 days of supply, up 14% from last year. They’re also above three million units (3.04, to be precise) for the first time since the pandemic, according to Cox Automotive.

But there is some huge variation within that 85-day average. Transplant automakers like Honda (59 days’ supply) and Toyota (35 days’ supply) still have lean stocks. The same cannot be said for many brands made by the “Big Three” Detroit-area automakers. Case in point: Ford has 119 days’ supply, the Dodge Ram pickup (Stellantis) 133 days’ supply, and Lincoln (Ford’s luxury brand) 168 days’ supply.

On the construction side, the Dodge Momentum Index (DMI) has slipped on slowing growth in nonresidential projects – including moderation in the previously red-hot data center sector. And some of you have told me that commercial construction won’t really pick up again until interest rates are closer to 5%. That seems a distant prospect with inflation not yet tamed. And with the Trump administration potentially embracing inflationary policies when it comes to tariffs and immigration.

One interesting counterpoint: The ABI, an advance indicator of nonresidential construction activity, jumped into growth territory for the first time since January 2023. So maybe things will improve 9-12 months from now?

What’s the lag time between tariffs and new capacity?

There is a case to be made that tariffs could lead to more manufacturing plants being built in the US. And building those plants could help demand for steel.

We saw that Section 232 tariffs, while inflationary at first, did encourage new capacity. But there was a lag of several years between when those tariffs were announced (2018) and when that new capacity entered the market.

One question I have: What is the lag time between potentially broad-based tariffs and when new factories would be built in the US? In the end, maybe this tale of two cities is more a story of two sides of a single coin. The current steel market might be less than stellar. But that doesn’t mean that steel doesn’t still have a bright future!

SMU Community Chat

Speaking of the future, I’m looking forward to sitting down with Taylor St. Germain of ITR Economics for a Community Chat webinar on Dec. 11 at 11 am ET. You can register here.

Alan Beaulieu – Taylor’s mentor, and a frequent speaker at Steel Summit – often noted that presidential elections don’t have the outsized impact on the economy that we think they do. And I’ll be curious to hear Taylor’s outlook not just for next year but through to the 2030s.

Tampa Steel Conference

That’s not say that Trump administration policies won’t be a big point of discussion in this newsletter and at our upcoming events.

Certain Trump policies will have turned from rumor into action when we gather for the Tampa Steel Conference on Feb. 2-4. I’m looking forward to hearing how leading industry executives and analysts plan to navigate what could be a very different US steel landscape. You can learn more, see the agenda, and register here.

Until then, thanks to all of you for your continued interest in SMU!