New York City Bits ‘N Pieces

Written by John Packard

Here are some of the comments made to SMU over the past few days both in New York City and upon our return to our offices.

Regarding scrap prices, one of our sources was telling us that the domestic steel mills are making a mistake by attempting to push ferrous scrap prices lower, especially when the spread between scrap and hot rolled coil could very well be at historical highs. The process of pushing scrap lower leads to conflicts between steel mills and their customers over pricing. Right now the mills have their cake and greed may lead to unintended consequences…

In that regard (steel prices), we received a copy of the Metal Bulletin price forecast slide used in their presentation at Steel Success Strategies. Their forecast calls for prices to slide beginning in late June/early July through the end of the year. From the slide it looks like the market low will be in December 2016 around $460-$480 per ton before rebounding in 2017 to $550(ish) by May.

When I discussed the Metal Bulletin slide with an executive with one of the steel mills, I was reminded that another indexing service provider had projected HRC to reach $698 per ton in 3rd Quarter 2016…

Projections should be taken as the “best guess” and many times your best guess is better than the experts.

At a breakfast meeting an OEM was commenting on the new technologies being discussed at the conference. Then they said, “Other than Big River Steel all the technology is going to China.” Not a ringing endorsement for the U.S. steel industry. It may be every more telling because it came from a Tier 1 auto supplier…

This same Tier 1 auto supplier told us to expect “…more European steel coming into the market [automotive steels].”

The auto supplier was clearly upset with the run up in flat rolled steel prices. They believe hot rolled coil should be valued at $500-$550 per ton not over $600 per ton. They said the mills need to understand that when it comes to outsourcing, “They are competing against commodities, it is not labor [that makes the difference in moving products from North America to China].” They did believe the market would “force” the mills to adjust pricing at some point in time.

One more comment from the Tier 1 auto supplier regarding the battle between aluminum and steel. Speaking of the auto skins they said, “If they [steel mills] don’t get to .019” [generation 3 steels] aluminum will clean their clock.”

At one of the dinners we attended one of the service centers reminded everyone that hot rolled coil was selling for $687 per ton back in May 2014. In this steel buyer’s opinion there is no reason why the domestic mills can’t take prices to $687 per ton now if they chose to.

Another source who is also bullish on North American steel prices spoke to SMU and asked how many “spot” tons were available out of the integrated mills right now and how much foreign steel is really coming into the market over the summer months?

We heard this from a number of places. The idea that when the Chinese had their little run up in pricing earlier this year help dry up cheap substrate and subsequently helped reduce the amount of tonnage sold to the U.S. market for delivery this summer.

You also saw the Chinese effect in the scrap markets as 80/20 mix to Turkey sold up to $330-$335 per metric ton. Now, with the Chinese back in the billet market the scrap numbers have dropped to $225 a metric ton.

Overall, we would say the majority of the executives we spoke to in New York City (and since) are bullish about the flat rolled steel market, while at the same time worrying about the potential collapse of market prices.

Today a service center executive told us that their customers had bought all of their steel through probably September. But, in the next month of two they would be back in the market…

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