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Anxiety grips the U.S. steel markets
Hurry up and wait. Hurry up and wait. The steel industry is a mess.
By John Packard
In my July 2017 article in The FABRICATOR®, I mentioned the market was poised for a strong upside price move because of the expectation that President Trump was about to become the savior of the domestic steel industry (steel
mills, not manufacturing companies).
The U.S. steel mills announced a $30 per ton price increase on flat-rolled early
in June. The expectation at the time was for more price announcements as we
approached the deadline imposed by President Trump on the U.S. Department
of Commerce (DOC) regarding the Section 232 (national security) review for steel
and aluminum. That deadline was the end of June 2017.
In early July steel market prices were very close to what they were at the beginning of June (see Figure 1). Steel Market Update has the benchmark hot-rolled
price average at $610 per ton ($30.50/cwt). Our SMU Price Momentum Indicator
is pointing toward higher steel prices over the next 30 to 60 days.
However, uncertainty surrounding the Section 232 recommendation and announcements by the DOC and President Trump has caused the market to pause,
and prices have been mixed over the past few weeks.
We have left the SMU Price Momentum Indicator at “higher” because the president has been making statements that he is going to “fix” the domestic steel industry by controlling “dumped” foreign steel into the U.S. market. He continues
to promise tariffs, quotas, or a combination of both. We have no choice but to
take him at his word and to expect that any action will push steel prices higher.
The June 30 deadline for the DOC to make its recommendations has come and
gone. Commerce Secretary Wilbur Ross told senators on the Ways and Means
Committee last week (July 14) that he expects the recommendation to be ready
as early as this week (week of July 17). I expect once the recommendation is
made, President Trump will not use the full 90 days he has available to make a
final determination on actions to deter foreign steel imports.
Again, the steel community is counting on the trade actions to be quite restrictive, which would affect the supply of steel as we move into the fourth quarter.
Right now, about 24 to 27 percent of apparent steel supply is coming from for-eign-produced steel. The steel mills are running at an average capacity utilization
rate of 75 percent (probably closer to 80 percent on flat-rolled steel).
If imports were cut in half, this would put about 1.5 million tons of monthly
demand back on the domestic steel mills. To put this into perspective, at a 75
percent utilization rate, the domestic steel mills produce about 1.75 million tons
of steel per week. Adding 1.5 million tons would be like adding an extra week’s
production to each month.
What is the U.S. government trying to accomplish with the Section 232 steel
and aluminum investigations? It wants the world to recognize and then deal with
This is mostly directed at China, which has been flooding the world with cheap
steel to keep its mills running. The Chinese have been promising to reduce capacity and have shut down some old and polluting steel mills. Even so, the Chinese
steel mills produced the most steel in the country’s history in May 2017 (most
recent statistics available).
Our analysis is showing the country’s steel production to be in a growth mode
(albeit modest) at a time when they are promising to reduce capacity (see Figure
2). Last year, the Chinese steel mills exported more steel than the U.S. produced.
U.S. steel mills have been using the antidumping (AD) and countervailing du-
ties (CVD) system to try to block or reduce foreign steel from coming into the U.S.
market. China has been blocked, but other countries such as South Korea and
Taiwan, even though they have AD/CVD covering many of their products, have
continued to ship into the U.S. market. In my opinion, the government will go
after those countries that failed to scale back exports of products cited as being
dumped into the U.S. market. At the same time, I expect our NAFTA partners,
Australia, and Europe will be spared from an across-the-board quota or tariffs
that might be imposed on other countries.
It is known that President Trump is trying to lower the U.S. trade deficit. I be-
lieve he is using steel as a tool to force concessions from those countries with
which the U.S. has the biggest trade deficits.
As I write this, we still do not have answers to so many questions, and the steel
market remains confused and anxious. The Section 232 discussion is drowning
out all other discussions and negotiations within the industry, and steel buyers
need to understand its effect on supply and pricing so they can make informed
Maybe by the time this article is published in mid-August, there will be some
From August 28-30, Steel Market Update will conduct its 7th SMU Steel Summit Con-
ference in Atlanta. Many highly qualified speakers will discuss what is “free and fair”
trade from both sides of the issue. For more information, visit www.steelmarketup
date.com/events/steel-summit or call 800-432-3475.
China’s steel production seems to be in a modest growth mode. In May, the country
produced the most steel in the country’s history.
In early July steel market prices were very close to what they were at the beginning