The market continued downward as expected and has settled around $655/ton. Nucor’s Consumer Spot Price (CSP) has also fallen but now steady at $32.50/cwt. The major indices are in good agreement around this value suggesting a fairly stable market. The weekly numbers were unchanged this week even as many expected further erosion. The value represents a $50 decrease during the last 4 weeks. A month ago, the price was declining by that same $50 in a single week. Though the market price is flattening, many expect additional declines in the near term.
The CME futures have adjusted to this new price but do not indicate the market senses a collapse in price. As of yesterday the values were: August $655, September $675, October $725, November $770. The directionality of the indices and forward looking Futures suggest the market is at or near a bottom price.
Demand / Capacity
Most mills are now into August books. Current mill lead times are sitting at 3-5 weeks with a tendency to deliver early. Electric Melt operators are taking advantage of their more flexible casting and rolling processes and are running with some constraint. Those mills running blast furnaces are trapped and have not yet announced any idling or unplanned maintenance. Surprisingly, after moving downward to near 76% last month, the overall mill capacity has been moving up the last weeks and now sits at 78.3%. This continued strength by the mills is surprising given the relative weak demand signals.
Demand is further off even from last month which was also slower than normal. Agriculture and Construction equipment builds are down and major OEM’s are announcing further wage and staff layoffs. Auto build was down 4% June to July. Distributors are seeing price shopping without follow through orders. Fabricators report their customer orders are slowing. This demand picture is lower than the normal seasonal summer lull. Steel demand is simply down. Even though prices appear to be at or near the lowest expected in the near term, buyers are reluctant and most seem to be shedding inventory rather than building it. Those with mill contracts are strictly buying on contract.
This goes to show demand and capacity are not balanced. There is still too much steel coming into the market and weighing down price. Many buying spot have access to contract buys but are buying ahead of current needs which will further reduce demand in the coming months. The demand picture is not only down, but there is also nothing indicating change. Demand is stagnant and could remain low past the season. Mills will need to adjust output if they want to control further price erosion or have any hope of pushing prices up before next year’s contract negotiations start.
Expectations
There is no white knight in the macro view. The country is spell bound with the ever-changing election news with radically different environments expected depending on the outcome. The Fed discusses a weakening employment market but stubborn inflation. They are hesitant to drop rates too soon and fan inflation rates higher. The housing market has stalled out. New builds are down. Available housing inventory is up, time on market is up, asking prices are declining in several major markets and buyers are not jumping in. Consumer debt is up. Auto sales are slowing. All of this suggests the American economy is running on fumes. Going forward, further minor downward changes could have huge impacts. At a minimum we should not expect change in the general economy until after the election. That timing says the steel market, similar to other markets, could be in for flat performance until November.
