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no, this is entersting
Friday, November 7, 2008
IN THIS ISSUE:
Steel Prices Decline Again (sounds like a broken record)
ArcelorMittal Sees Cup as Half Full
Survey Results - Bottom by First Quarter?
Steel Futures - a warm up
Final Thoughts
Steel Prices Decline Again (sounds like a broken record)
The flat rolled steel market continues to be fluid and prices are continuing to decline according to the CRU Shadow index as well as the most recent information coming out of Platts Steel Markets Daily.
On Wednesday of this week the numbers I had from The Steel Index had HR at $777 per ton ($38.85/cwt) and $942 per ton on CR ($47.10). I am questioning the cold rolled number from The Steel Index as it appears to be out of line with their HR pricing as well as what other indexes are showing right now.
Platts adjusted their midpoint pricing on Monday. Platts had Midwest HR at $760 per ton ($38.00/cwt) which is in line with The Steel Index number. Their CR price was also adjusted on Monday to $880 per ton ($44.00/cwt).
On Wednesday afternoon CRU came out with their Shadow steel price assessments and their new price on HR is now $756 per ton ($37.80/cwt) and CR is now $817 per ton ($40.85/cwt).
Platts advised me on Thursday their HR midpoint has decline since Monday and the new number is now $735 per ton ($36.75/cwt) fob Midwest Mill. The CR number remained the same as reported in my Wednesday edition - $880 per ton ($44.00/cwt).
I believe prices will continue to be weak as long as the gap between scrap and HR prices is out of their historical trends. Either HR pricing has to come down or scrap pricing needs to rise (or both).
An example of the changes - Nucor uses #1 Busheling as their benchmark for their flat rolled carbon contract customers. The mill sets a "base" from which surcharges are to be added. The base is $170 per metric ton. Steel Business Briefing has #1 Busheling at $130-$140 per ton at this moment. This means the next Nucor adjustment will be at $0 surcharge. My understanding from industry sources and my own research - this is the first time since August 2005 Nucor has not had a surcharge - in other words, this will be the first month since July 2005 were the price of #1 Busheling is less than $170 per metric ton (surcharge is based on the previous month scrap price).
I did some quick research to see what the hot rolled coil index was during July and August 2005. Based on SBB's archives HR was the same for both months - $482-$504 per ton ($24.10/cwt-$25.20/cwt).
I thought my readers would be interested....
ArcelorMittal Sees Cup as Half Full
ArcelorMittal continues to see the silver lining in the fundamentals of the world steel economy. During their earnings conference call on Wednesday the Mittal's pointed out the infrastructure growth in China and elsewhere will continue. There should be a "recovery in the real economy" and the medium to long-term fundamentals remain strong.
Mr. Mittal feels we are living in "unprecedented times" as everyone in the world misjudged the financial crisis. The CEO of ArcelorMittal feels the financial crisis has "shocked everyone". From his perspective their business was quite strong and the deterioration in their order books began in early September and within four weeks everything had changed.
Mr. Mittal outlined a strategy across the globe to cut production by at least 30 percent. For North America the cuts will be even deeper as they outlined cuts in excess of 35 percent due to weak demand. This equates to a production reduction around 9 million tons from all of the AM mills.
During the conference call Mr. Mittal pointed out steel businesses are more flexible and able to adjust to market demand. Going back to the past - and Mr. Mittal considered 2001 as part of the past - it would take four months to adjust to a market slowdown - now it takes four weeks.
ArcelorMittal feels the inventory adjustments in the United States and around the world will be completed by the end of December or early in the 1st Quarter 2009. So, my guess is they still feel the glass is half full - and all eyes are on China to keep the glass from tipping....
Survey Results - Bottom by First Quarter?
One week ago I sent out questionnaires to approximately 150-175 companies evenly split between manufacturers and service centers/distributors. I received responses from 73 companies - 35 manufacturers and 38 service centers/distributors. Of those who responded 80% purchased directly from steel mills and 20% were exclusively service center buyers. The results of this survey are not scientific and are for general information purposes.
When asked if their company planned on buying more steel through the balance 2008: 66% responded yes, 30% responded no and 4% responded spot purchases only.
When asked about purchase plans for January 2009: 48% responded they would be purchasing material in January, 45% responded they would not and 7% did not know at this time.
To me one of the interesting questions was when buyers thought the market prices would "bottom"? 23% responded prices had already hit bottom or would by the end of December, 59% felt prices would bottom in first quarter 2009, 8% felt it would be second quarter 2009 and the remaining 10% did not have an opinion.
When asked to rank their impression of business conditions now on a scale of 1-10? 49% ranked their business in the 1-3 range, 45% were in the 4-6 range, 6% ranked their business in the 7-10 range.
I then asked the same respondents to rank what they felt business conditions will be in January on a 1-10 scale? Only 27% felt they would be in the 1-3 range, 56% picked the 4-6 range and 17% felt confident their business would be doing well in the 7-10 range.
Customer Comments:
"Steel prices should bottom November/December. I think business will become steady in the first quarter. However I do feel that volumes will be way down from 2008 levels." Canadian OEM.
"I expect the 1st half 2009 to be down in 'tons' in the 30-40% range, and then 2nd half maybe down 8-15%, with overall year down at least 10% in tons. A looming concern is when business improves in Mar and April will the mills be in a position to ramp up in time? There could be a 30-60 day period where those that got inventories too low could be in a pinch." Southern USA OEM.
"Call me optimistic, but I have to believe that prices will stabilize at near rock bottom [1st quarter '09] and with that the market will once again stabilize itself and allow 'most' business to resume their typical cycles. However, with the current cash crunch and credit restrictions it's possible that there won't be a huge demand from the automotive and housing markets. Which is a scary thought going forward." Northern USA Service Center
"Phones aren't ringing, inquiries aren't coming in." Midwest USA Service Center.
"I believe they have bottomed out...but you know my feelings already. The shortage is closer than you think!" East Coast Service Center.
"I think they [prices] will bottom in first or second quarter. I don't think they can go much lower." East Coast OEM.
Steel Futures - a warm up
I want to thank the Institute for Supply Management Steel Buyer's Forum for the invitation to sit in on a presentation made to their group by Paul Shellman of the NYMEX/CME Group and Jonathan Putman of Birmingham Futures Exchange regarding steel futures contracts.
I won't even pretend I am an expert - or even well versed on the subject after one half-day seminar. However, I believe steel futures will most likely have a role to play in the future of the steel business so I am making an effort to learn more - and then share what I have learned with my readers to the best of my ability.
The focal point of their presentation was to essentially learn how to manage risks (hedge). One of the selling points for learning more is most steel companies and steel users are essentially speculators (gambling). "If your bottom line is tied to steel prices you are gambling."
Examples:
If you buy on the spot market - and sell contract customers - you are at risk.
If you buy contract - and sell into the spot market - you are at risk.
If you buy contract - and sell into the contract market - you are at risk (if your supplier or customer does not honor the original contract).
If you carry inventory - you are at risk.
Are you going to bet your business on what is going to happen in the future? The obvious examples were shown - 2003/2004 and the major run up in prices and the new terminology buyers had to get used to "surcharge". We are in the midst of a second wave - perhaps even more destructive to business than 2004 as prices have risen without regard to the demand being done and now have fallen just as quickly - with perhaps even more damage as inventories devalue and contracts fall apart.
The CME Group (of which NYMEX and COMEX are both part of) has developed a U.S. Midwest domestic Hot Rolled Coil steel contract. The specifications of the contract are:
Type - Futures Contract
Size - 20 short tons
Currency - U.S. Dollars
Minimum Price Quotation - $5.00 per ton (minimum price fluctuation)
Trading Months - 18 months
Settlement Type - Financial (you don't take possession of steel)
Final Settlement - The average of the prices reported by CRU Indices during the contract month for the reference index.
Trading Venue - ClearPort Clearing and CME Globex
Last Trading Day - Last business day prior to fourth Wednesday of the month.
Daily Settlement Prices - Exchange compilation of broker prices and CME Globex.
Margins - Margins are required for open futures positions.
CME Globex Trading Hours - The contracts are available for trading on the CME Globex electronic trading platform from 6:00 p.m. Sundays Eastern Time (ET) through 5:15 p.m. Fridays ET, with a 45-minute break each day between 5:15 p.m. and 6:00 p.m. ET.
ClearPort Clearing Hours - Off-exchange transactions can be submitted solely for clearing as a listed futures contract to the ClearPort clearing website until 5:15 p.m. ET, Monday through Friday, and the day proceeding a holiday.
For more information visit www.nymex.com/steel or www.CMEGroup.com websites.
I will be working on understanding steel futures, hedging as well as options over the coming months and will report what I discover.
Final Thoughts
Oil - light sweet crude (sometimes it makes you want to drink the stuff instead of putting it in your car) - anyway, light sweet crude closed on Thursday at $60.77 per barrel on the New York Mercantile Exchange (NYMEX). This represents a drop of 60 percent since the peak of prices at $147.27 per barrel in mid-July. In London, December Brent Crude dropped to $57.43 on the ICE Futures Exchange.
According to AAA gasoline prices have dropped to a national average of $2.34 per gallon for regular unleaded (at my local Georgia station today it was $2.10 - the first time we have been below the national average for some time).
Spot zinc closed Thursday at $.4869 per pound. LME zinc inventory levels are now 181,000 metric tons.
Spot aluminum closed at $.8840 per pound. This is down to levels not seen since 2005.
New unemployment claims = 481 K (consensus was 480 K).
Released earlier this week - Factory orders -2.5% (consensus was -0.7%) - not good news.
The dollar continues to strengthen against currencies around the world. Watch foreign steel numbers with the dollar continuing to strengthen.
I continue to look for more market information regarding foreign steel offers and any new or unique terms and conditions. I have heard of one offer being made recently by a foreign mill/trading company of "price in effect at time of arrival". In the past this generally has been used as prices go up. Now, I have heard it being used as prices continue to fall as an inducement to get the order from the customer. If you have an offer like this or anything interesting please send me an email or give me a call - in confidence - john@steelmarketupdate.com or 800-432-3475.
By the way - if your business is going well and you don't understand all of the negative news around you - please let me tell your story. I am looking for as many "feel good" stories in the steel business I can find. Please contact me at john@steelmarketupdate.com or at 800-432-3475.
I am always looking for new steel junkies who can become addicted to my newsletter (and then become paying subscribers) please recommend my newsletter to your colleagues and steel friends. They can sign up for a trial subscription online at www.steelmarketupdate.com or, send me an email with their name and email address and I will contact them to see if they would like to register for a trial.
Your business is truly appreciated.
Sincerely,
John Packard
©Copyright 2008 Steel Market Update, Inc.
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Steel Market Update, Inc. 71 Ridgetop Court, Dawsonville, GA 30534
BHP is cutting...... despite what you may read, they are cutting.
One thing lopsters don't like to examine is the phyiscal reality that would be the changeout for the new bills. Where are the bills????
Not to mention, pricing of products... i just find the whole idea of "loping" to be dang near laughable.
They'll need new bills first.
Steel Building manufacturer. Steel is getting butchered, to much inventory in end users who are dead in the water. Service centers will likely cause us severe damage as they are starting to soften prices just to ditch their inventory. Mills are shutting down to keep their prices up, but they are dead in the water too.
thank you, i'm still working.... for now LOL
we laid off 20% of our company yesterday....... sheesh, things just keep getting worse.
starting to wonder whether to buy it or not
Meth is the new Quaalude....... now which corner pusher is going public as a "pharmaceutical" company.
ok, stock in BeeGees and booze. LOL
BBI at a buck??? good for a trade maybe???
So, what did well in the 1970s.
yep, can't believe how much this is diving.
bought some ETFC at 2 this morning thinking that was a bottom... dam 1.76 now....... GRRRRRRRR.
Buy more in the morning??? LOL
*covers his eyes*
i think it sunk in
I'm staying out of the market today. I think to many factors will sway things and i can't be here to capitalize or run for the hills as the case may be.
GOOOOOOOODDDDDD MORRRRRRNNNNNNINNNNGGGGGGG HOP!
ACK I'm no liberal !!!! lol
Hey leave me out of this. LOL
LOL, it doesn't mean lop or anything else.
I do have to say GKK looks interesting
I agree, i was shooting shotguns and .30-30 at age 8 LOL. ( i picked myself up off the ground from the 12 gage though.)
Even the family pets are armed round them parts. LOL
TRMP ??? Looking interesting
all steel is down big right now, don't hold those puts long. US steel has some surprises for folks yet. They are cutting production to increase price of steel.
true, and the father should be shot as well for being so stupid. I grew up around firearms and was never allowed to hold a weapon for the first time without oversight and assistance for my own safety as well as others.
I can't even believe what i'm seeing.
unfreakin real...... OK, Chris, sell all your stock... that will make it go back up LOL.
We need a chant to get the market back right, LOL
LOL, how you been hanging MWM. I need to get on Magic for a bit.
Dave, that ore production you are talking about is coming to a screaming halt. Mills have cut production or shut down production as steel and metal products have piled up on end users and supply houses.
China reports stockpiles of ore not in production.
We're all in a world of shat my friend.
LOL, i love my guns, pizza, and coffee. Note necessarily in those orders.
oh hell yea, we need guns, coffee, and pizza. LOL
then sell it, in the coming months........ 4 buck coffee... you'll see your SBUX junkies taking down the drug thugs to get cash for their fix.
I'm watching too :)
FRO, that may be something worthwhile. I was watching it and it had run way up there. Maybe it's time to buy that one.
Yes, i'm still sitting on the sidelines, my lord our retirement funds are getting decimated.
More proof to stay away from "growth" stocks IMO. Look for old standards producing or servicing things we must have. Grocery stores, etc.
Yep, and those same folks were the ones with the cell phones. IMO, they are exporting the phones. I'm leary of china.
Interesting, but i'm worried that China may not be showing the world the truth about how this economic tidal wave that has hit everyone else is affecting them.