Mr. Gloom:
Tough economy, is it not Mr. Bull? Should have unpleasant repercussions on the steel market as well. It looks as if the steel market in general has reached and surpassed its zenith. Flat rolled prices are actually going down a bit, and even
rebar, one of the strongest steel products so far this year, is poised to go down somewhat.
The housing market is in tatters, the car industry is sputtering, and inflation is not yet under control. The Federal Reserve wants the economy to slow down and the economy is reacting accordingly. But this time it might not be a smooth landing.
Mr. Bull:
Actually, our economy is very resilient to all the turmoil going around the world. We have a healthy growth rate, and demand for steel products is still very strong. The slowing of the economy was completely intentional. Naturally, we don't want the economy to overheat and then get caught with high inflation rates. I would rather have a soft landing like this than to go gangbusters for now only to crash later.
I know you are pessimistic about steel prices, but you are mistaken. Actually, not any steel product pricing has come down in the last few months. Long products are solid, and pricing is trending sideways. Non-residential
construction is so hot that wide flange
beams producers have put their customers on allocation. Chaparral Steel, usually a spectator in pricing decisions, broke ranks with
Nucor, and insisted on a $20 /nt increase for August deliveries. They are getting this increase, even though their big brother
Nucor is still selling at the same prices.
For flat rolled, I guess you haven't seen the price increase announcements for
plate. Last I checked it was between $20 - $30 /nt, and there's no reason to believe they will not get it. Gloomy guys like you think the sheet prices are going down, but really, have you seen anyone paying less for coils nowadays? Hot rolled is still tight except a few odd transactions, and pricing for sheet remains where it was a month ago.
The only thing that went down is
scrap. However, long and flat products have not gone down. This phenomenon in itself explains the strength of US market for steel products.
Mr. Gloom:
Resilient as the US economy may be, the indicators point to a maximum growth of 2.5 percent for the remainder of the year. This is a far cry from the usual growth rate of over three percent and way below the astonishing 5.8 percent rate in Q1. Interest rates are already high, despite the break the Federal Reserve gave us in early August, and inflation is out of the box. High energy prices will see to it that this situation will not change any time soon. The Federal Reserve might even be compelled to raise interest rates again, stoking the fears of a full-fledged recession next year.
The sideways slide of
US steel prices this summer was not quite as level as you put it.
Rebar prices have shown some weakness, and the recent
wire rod price increase went nowhere. In fact, rod prices have come down in the last two months as well. Flat rolled products have experienced some painful price cuts, be it for hot rolled, cold rolled or even
galvanized sheets. Based on the “high water mark” of this spring, prices have slid by as much as $40 /net ton.
The US economy is in a volatile state, and the indicators point to a significant slowdown. The steel industry will certainly be affected.
Mr. Bull:
Actually, high energy costs are probably good for steel companies. This means that drilling activity will be strong for many years to come. This up-cycle might last for another decade. We will need to drill deeper wells, and to use a lot of line
pipe and oil country
tubular goods (made from flat rolled steel). New offshore platforms (made out of structural steels and plates) will need to be built. Our transportation infrastructure is at its maximum capacity. We need to build new rail tracks, rail cars, and river barges, all heavily made from steel products, just keep up with the booming transportation demands.
The Highway Transportation Bill is pouring billions of dollars into improvement of motorway infrastructure, meaning that more rebars,
beams, and plates need to be consumed.
Don't get wrapped up in negative thinking. What you are experiencing is a temporary and very seasonal slowdown. Yes, the economy is slowing at a controlled rate, and yes, the world steel demand is less robust than it was in the second quarter. However, things will come roaring back, and once again, most pessimists like you will find themselves without enough steel inventory to survive.
The steel markets are not predictable anymore. For the past three years, the momentum has shifted to a “sellers market.” You have to graduate to the new steel order. It's not healthy to try to time your purchases anymore. As a buyer, you should buy what you need. Otherwise, you fall short and have to pay the price later.
Mr. Gloom:
Oil platforms, badly needed as they are, will take a while to be built and to have any impact on the current slide in the steel industry. The same goes for the Highway Transportation Bill. The other crucial segments of the US economy (housing, automobiles, consumer spending habits) are pointing to what many analysts already call a recession early next year. The US consumer, the driving engine behind it all, is getting tired under the twin burden of sky rocketing energy prices and an already heavy debt burden. Storm clouds are gathering in the American sky!
Mr. Bull
While we are building oil platforms, rebuilding after Katrina, exploring oil, we are using steel, not in the distant future, but now. Neither US nor world demand will suffer significantly when we go through some slower times, such as now. And demand for certain products, such as
plate and wide flange
beams, is the highest it's been in the past few years.
On the supply end, the consolidation process continues, and prices are controlled by only a few major mills. All mills enjoyed the good three years, and they don't want to go back and lower prices. They would rather cut
production to keep the prices stable.
We have no fundamental problems in today's steel market, only temporary slow down due to the summer doldrums.