Final Thoughts

It’s (still) raining tariffs

On top of that, we have sector-specific (aka “sectoral”) tariffs on steel, aluminum, cars, and car parts… as well as a growing list of other products. Among them are everything from rare earths and semiconductors to lumber and pharmaceuticals. Now, add medium- and heavy-duty trucks and truck parts to that list.

So, if I’ve got this straight, the Trump administration will now have to negotiate bilateral trade deals with every county on Earth while also negotiating a thicket of sectoral tariffs. That sounds… complicated.

If you’re having trouble keeping up with it all – and I know I am – the Peterson Institute for International Economics, a think tank, has a helpful timeline here.

Tariffs aside, let’s turn back to the things we do know.

But business is OK

For starters, for all the noise around tariffs, it’s not like the economic world has stopped. Despite some scary headlines lately (especially about Trump potentially firing Fed Chair Jerome Powell) this is not October 2008 (financial crisis) or March 2020 (onset of the pandemic).

But it sure seems like we’ve taken a relatively strong economy and poured a thick sauce of uncertainty over it. As was noted on the HARDI call earlier this week, some mega-projects have been canceled or scaled back. Perhaps because funding for some Biden-era initiatives has been cut. And that has led to pockets of weakness. But day-to-day business continues.

One mill executive, for example, told me that business activity had mostly surprised to the upside in April. “I’m impressed with the small-order department,” he said. “And there could be some upside if Trump comes to his senses and stops trying to do everything at the same time.”

The big pause

As it stands now, we had panic buying in February and March ahead of tariffs going into effect and ahead of the preliminary anti-dumping duties in the coated trade case. That pulled forward buying into a period that already had a lot of maintenance outages. It only made sense that prices went up and lead times stretched out.

Now, more people are on the sidelines waiting to see where the dust settles with tariffs. Meanwhile, lead times are stretching closer toward the typically slower summer months. And more mills are willing to negotiate lower prices.

It feels almost like last year, when the market had momentum in March that abruptly halted in April. Back then, it was because Nucor posted its first “consumer spot price,” or CSP, at a number lower than the market expected. Prices subsequently drifted lower into the summer before rebounding modestly ahead of Labor Day and fall activity ramping up.

So, you know, let’s not freak out. I wouldn’t be shocked if we see something similar this year. Namely, prices drifting lower into June-July before improving again in September-October.

A word on futures

Even so, I’ve gotten some questions about how hot-rolled (HR) futures settlements on the CME can be in the low $800s per short (st) for the summer months, which would imply a significant drop from where prices are now.

For starters, it’s important to remember that futures DO NOT predict the future. That said, some of the market participants I’ve talked to this week say they’re only buying to their contract minimums. Or, as one Midwest service center source put it, “You ask about the spot market. And people say, ‘What spot market?’”

Let’s say a company capable of placing 10,000-20,000 tons or more of true spot material steps into such a market. It’s not hard to see how they might get $800-840/st. If the market remains weak, that “big buyer” price tends to become the prevailing spot price on a lag of maybe a month or so. If the market improves, well, it’s a different story.

Also, there is probably more attention being paid to futures than usual. Why? The simple fact is, a lot of contract prices are going to reset higher in May based on April spot prices. And no one likes to see spot prices going down as contract prices are going up.

Glass half full or half empty?

Again, the market seems to be holding up well enough, all things considered. And Steel Dynamics Inc. (SDI) Chairman and CEO Mark Millett made a good case for optimism on the company’s earnings call on Wednesday (as he usually does).

Still, if you’re looking for reasons not to buy steel, there are plenty of them.

The Architecture Billing Index (ABI), a leading indicator of nonresidential construction activity, was down. Home sales, meanwhile, fell to their lowest point since the financial crisis, according to Realtor.com.

When it comes to manufacturing, Volvo announced layoffs at its US truck plants, in part because of tariffs. Mazda’s plant in Huntsville, Ala., meanwhile, “paused” production for a similar reason. Could we see more such issues as the impact of Trump’s tariffs on supply chains and trade routes spreads?

That said, it’s not all bad news. Take sheet inventories. They’re not low by historical standards. But they’ve moved steadily lower since December.

Also, when prices surged in February and March, we saw interest in imports increase as well. But as US prices have fallen more recently, interest in imports seems to have waned a bit.

I’m going to hazard a guess that the combination of longer import lead times and unpredictable US trade policy might lead to fewer imports in August/September. So perhaps we could see the market tighten up again over the summer?

There is a lot of new capacity, so it’s hard to see a shortage emerging. But maybe we’ll see more of that new capacity running fuller. All told, that doesn’t sound like such a bad outcome.

Steel 101 comes to Beale Street

Want to learn about steel while humming Marc Cohn’s ‘Walking in Memphis’ on Beale Street?

Then we’ve got just the program for you. SMU’s next Steel 101 will be held on June 10-11 in “the Home of the Blues”. It will also feature a tour of Nucor Steel Arkansas, just across the Mississippi River in Blytheville, Ark.

Students will learn everything from how steel is made and how it’s priced to key end markets, coating extras, and more. You can learn more and register here.