Final Thoughts

It wasn’t a big drop, just $10/st. That’s mostly what we’ve seen over the last month – a steady erosion in prices. But that modest week-to-week change in price understates a huge swing in expectations.

Looks like we’re past the peak

Rewind just a month ago. The high end of our HR range was at $1,000/st. There was chatter about HR prices potentially going as high as $1,100/st. That wasn’t crazy talk. Lead times were stretching out. Mills weren’t willing to give an inch on prices. And more than 60% of survey respondents said prices wouldn’t peak until May or June.

We were still collecting data for our latest survey when I wrote this. (Full results will be released Friday.) But it’s safe to say that trends from last month are no longer in place. In fact, as it stands now, nearly half of survey respondents think prices have already peaked.

Futures markets indicate something similar. CME HR futures of course don’t predict the future. But they reflect an informed view on it. And future settlements from June forward indicate an expectation that prices could come down another $100/st to about $800/st.

Normally, if people expect a drop of that magnitude, you would start to see it reflected in lead times. We’ve seen lead times dip a little, but not by very much. Still, the situation could change if people start buying to their contract minimums.

We’ll release updated lead time data on Thursday. I don’t know whether we’ll see a big change then. But at some point, I can see shift in buying patterns as contracts reset at higher prices while the spot market moves lower.

Does anyone have a tariffpalooza playbook?

As we’ve discussed at length, uncertainty around tariffs has pushed people to the sidelines. By tariffs, I’m referring not so much to 25% Section 232 tariffs on steel but instead to the “Liberation Day” tariffs on entire countries (or trading blocs in the case of the EU) and to the Section 232s on other sectors – everything from lumber and copper to automobiles/auto parts and semiconductors.

What is the combined impact of those tariffs? A lot of you have told me it’s short-term pain for a medium/long-term gain as reshoring ramps up. Maybe. I sure hope so.

But look at this quote from Swamy Kotagiri, the CEO of Magna International – one of the largest auto parts producers in the world. (This was reported by the Detroit Free Press from an auto industry event on Tuesday.)

“If you look at ’08, ’09, because of the financial conditions — higher interest rates, people not buying cars — it was demand destruction. If you get to Covid, it was a shutdown. The chip crisis was all about balancing different models, a lot of start-stops in the factories,” Kotagiri said.

“There’s announcements of (automaker) plants being shut down. And that’s just the beginning. I’m not being dramatic saying it’s all rolled into one. It’s a really complex situation. If someone has a great scenario plan for this, I would really like to know,” he added.

So, if you’re feeling a little concerned and uncertain, don’t worry – it’s not just you. Some of the biggest manufacturers out there aren’t sure how to play the cards they’ve been dealt over the last month.

The good news: Steel has coped with uncertainty before

Still, I’m not going lean into 2008-09 comparisons just yet. Some of the reasons we’re seeing a pause now could have been predicted well before President Trump took office – and would have been factors no matter who was in the Oval Office.

New capacity, for example. Big River Steel 2 is ramping up. Sure, size and grade ranges might be limited at first. But, as with any new capacity, tons are often sold at a discount initially. Meanwhile, SDI Sinton is supplying more tons to the market. That tonnage needs to find a home. For reasons like that, you can see why there might be a little pressure on prices in the South, for example.

And as we’ve noted before, it’s not just new hot-rolled capacity that’s coming into the market. A lot of new galvanizing capacity is coming in too. Sure, you can file dumping cases against imports – as US mills and the USW have against coated product. But you cannot (last I checked) file a trade case or invoke tariffs against your domestic competitors – no matter how much you think they might deserve it.

Again, I don’t want to be too negative about some of this. Duties and tariffs were designed to do encourage companies to invest in the US. Such investments should create a more efficient, modern US manufacturing base. That should naturally lead to lower prices, which is not bad if it allows domestic manufacturers to be more competitive.

Sure, we’ve lost the prospect of $1,000/st hot band. Even so, everyone should be making plenty of money at $900/st. Let’s say we do get to $800/st, that’s a number where US mills should be profitable, too. (We know this because we’ve gone below $800/st every year with the exception of 2021.)

This isn’t the first time steel has been dealt a hand it didn’t know how to play. No one had a playbook for the pandemic, for Russia’s invasion of Ukraine, or for these on-and-off (and back on again) tariffs. The good news? Steel has also proved itself to be pretty good at improvising.