Final Thoughts

Written by Tim Triplett

John Packard is traveling…

This was the plan when we got word there was a mysterious virus headed our way from China back in March: We shut down the economy for a month or two, keep our distance from each other, then get back to work and enjoy a quick, V-shaped recovery. Wasn’t quite that simple, as it turns out. With the coronavirus resurging in various parts of the country, the future is just as murky and unsettling today as it was when we first heard the term COVID-19.

That uncertainty continues to take a toll on steel demand and steel prices. Benchmark hot rolled steel prices have been trending mostly downward since the beginning of the year, even before the pandemic hit, plunging from $565 per ton in mid-March to a low of $460 in late April. HR rebounded a bit following the mill price increases in May to around $515 in early June before dropping again on the disappointing economic news to the current $475.

Ferrous scrap prices for July settled this week, dropping by another $20-40 per ton, putting additional downward pressure on finished steel prices. Scrap supplies have increased at a greater rate than steel production, explain the experts, who say it could be months before supply and demand for scrap reach a better balance. With steel consumption still so unpredictable due to the virus, SMU has kept its Price Momentum Indicator pointing toward lower steel prices in the weeks ahead.

Steel buyers are bearish on prices, as well. Two-thirds of the service center and OEM executives responding to SMU’s market trends questionnaire this week said they expect prices to stall at current levels over the next 30 days. About 26 percent expect prices to continue to deteriorate. Only about 8 percent expect prices to rise in the next month. “Improving demand has not yet caught up with supply,” commented one exec. “We’re in a delicate balance right now,” added another. “Any major shift in demand or supply will change that balance. Scrap falling this week won’t help.” Said a third respondent: “At just 55 percent capacity, the mills need to generate cash flow. How? The way they always do, by buying business!”

Ultimately, steel prices are a function of steel demand. About 40 percent of respondents to this week’s questionnaire said they see demand for their products improving, which is positive news. But an equal number see demand remaining the same, while another 20 percent said demand is still declining. Buyers’ comments were mixed:

“Our demand is up, but from a lower level than last year.”

“Our June was at 70 percent and we expect July to be 80 to 90 percent of normal.”

“Demand right now is erratic and hard to predict. Prices are low and margins are tight. Hardly anyone is buying out longer term. It’s kind of scary.”

“For the last two months my company has hit all-time record sales. Not really sure what is behind this, but glad to see it.”

“I think it’s going to be a long summer—with masks on of course.”

In other news, we have added two more high-profile speakers to the lineup of the 2020 SMU Virtual Steel Summit Conference — Mark Millett, President & CEO of SDI, and Maximo Vedoya, CEO of Ternium. You can join the hundreds of companies who will be attending (and networking) if you click here. You can also find more information on our website by clicking on the SMU Virtual Steel Summit link.

Bringing some clarity to the complex subject of steel futures will be Andre Marshall, president and founder of Crunch Risk, LLC, who will be the featured speaker during SMU’s next Community Chat webinar on Wednesday, July 15. This webinar begins at 11 a.m. ET and is free to anyone in the industry. Click here to register.

As always, your business is truly appreciated by all of us here at Steel Market Update.

Tim Triplett, Executive Editor


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