Final Thoughts

Choose your own (economic) adventure: Recession or climbing a wall of worry?

It reminds me a bit of the ‘Choose Your Own Adventure’ books I loved as a kid.

Think we’re heading off an economic cliff?

You could hang your hat on scrap prices being under pressure heading into May. You could also point to big discounts for larger sheet buyers. And of course there are concerns that the uncertainty unleashed by Trump’s tariffs could hammer demand as both companies and consumers move to the sidelines. (By some measures, consumer confidence has fallen to its lowest point since the ‘Gulf War Recession’ in 1990, according to the University of Michigan.)

Maybe you think everyone has gotten too worked up about the headlines?

If so, you might think the ‘if it bleeds, it leads’ nature of news headlines obscures the fact business has been pretty good, all things considered. Rock Trading Advisers President David Feldstein has some good numbers to back up that position. Let’s say everyone remains on the sidelines. Let’s also assume inventories continue to move lower, buyers are leery of imports, and day-to-day activity continues roughly as usual. At what point does “the herd,” as tends to happen in steel, jump back into the market at the same time – stretching out lead times and sending prices sharply higher?

Tariff revolution or temporary disruption?

We’ve also got some almost diametrically opposed visions when it comes to trade and tariffs.

Wiley Rein trade attorneys Alan Price and John Allen Riggins note that the negotiations around Trump’s ‘reciprocal tariffs’ could take time. After all, the president can’t snap his fingers and fundamentally reshape global trade patterns that took decades to establish.

And in the meantime, the Trump administration could continue to rain Section 232 tariffs on specific sectors. Last week, it was trucks and truck parts. What’s next? Come to think of it, maybe SMU should do a Section 232 ‘sectoral’ tariff bingo card.

In contrast, Steel Dynamics Inc. (SDI) CEO Mark Millett – who stuck to his generally optimistic tone in the company’s Q1 earnings call – said the current tariff regime might not be in place a year from now.

There is definitely a template for that. We saw it in 2018-19. Trump shocked the market when he hit Canada and Mexico with 25% tariffs on steel in 2018. His administration then lifted the tariffs in 2019 ahead of USMCA going into effect in July 2020. And things more or less went back to normal.

I have a little trouble seeing a return to normal happening now, especially with Trump continuing to threaten to annex Canada. But I digress. And what Millett said is worth thinking about.

Let’s say we see more imports this summer from countries that have long been subject to the 25% tariffs and/or from countries whose quotas were removed. Maybe the Trump administration will notice imports from Canada, Mexico – maybe even Brazil – aren’t all that high. And maybe it will notice imports from those other countries, some of which hadn’t been big participants in the US market, are suddenly a lot higher.

Could we see those countries tagged with higher tariffs or quotas? And maybe tariffs would be relaxed against traditional US trading partners in the Americas? I’m not putting that on any trade-policy bingo card for this summer. But, again, it’s one worth thinking about as we get closer to 2026.

Raw materials: Less reliant on imports, or same as it ever was?

Other debates have been with us for a while now, but they have taken on new urgency because of tariffs. Case in point: The Trump administration has broadly applied tariffs to metallics like pig iron and direct-reduced iron (DRI) for the first time.

Millett in the SDI earnings call said the steelmaker would lean on “SHRED-1” to blunt the impact. He noted it was something the company also did after Russia’s full-scale invasion of Ukraine in 2022. The war called into question two-thirds of the world’s pig iron supply (one-third each from Russia, Ukraine, and Brazil).

This isn’t something new. I wrote in April 2023 about attempts over the years to create a prime-equivalent shredded scrap. Funny. That was only two years ago. But it somehow feels like another galaxy given all that’s happened since Trump took office again.

Why am I circling back to the topic now? I’m guessing we’ll see ArcelorMittal and Nucor asked similar questions about tariffs and metallics strategies. There will be the added wrinkle that direct-reduced iron (DRI) from Nucor’s plant in Trinidad is subject to tariffs. (Note that Nucor typically feeds its mills on the coasts from that plant. The company supplies its inland mills from its DRI plant in Louisiana.) ArcelorMittal, meanwhile, imports raw materials for its hot-briquetted iron (HBI) plant near Corpus Christi, Texas.

Did US mills really become less reliant on imported pig iron following the fallout from Russia’s invasion of Ukraine? Or did we instead see an increased reliance on Brazilian pig iron – a dependence that might have been underscored by Brazilian suppliers passing along tariff costs to US buyers.

A lot has been written about manufacturers’ reshoring to the US. How much have domestic mills reshored their supply chains? And as EAFs move up the value chain into automotive grades – even exposed automotive grades – how much can they really wean themselves off of imported pig iron?

As usual, I have more questions than answers. I’m curious to see whether mills will address some of these issue in what will be another busy week of earnings. (ArcelorMittal, Nucor, SSAB, and U.S. Steel are all scheduled to post Q1 results.)

SMU Steel Summit – book soon, rooms are running out!

The economic outlook might be uncertain. But one thing is certain: SMU Steel Summit will be on Aug. 25-27 at the Georgia International Convention Center (GICC) in Atlanta. And it’s going to be another big event.

More than 250 companies have already registered to send nearly 600 people to the event. That puts us on pace to meet or exceed last year’s record attendance. It also means hotel rooms are going fast. Don’t wait to register until they’re all gone!

The Steel Summit website is here. There you’ll find the latest agenda, a FAQ listing alternate hotels if our blocks sell out, and registration information.

Last year was dominated by the presidential election. In 2023, chatter centered around Nippon’s deal for US Steel and the impending UAW strike. Will the big theme this year be Trump and tariffs? Or will we have moved on to another hot-button topic when we meet at the GICC in August?

Let us know what you think at info@steelmarketupdate.com!