2nd and 10

Posted by Peers

February 6, 2010

On the eve of the Superbowl, it’s hard not to use a football analogy.

It’s early in the new year, 1st quarter, and there are high hopes for an economic recovery, and to go along with that, a recovery in steel demand.

The last three months had scrap prices and iron ore prices rising, causing mills to raise prices on wire rod, rebar, and flat rolled products, among others. To go along with this there has been some slight increase in steel buying, but some of this can be attributed to steel buyers running their inventory to the lowest possible levels before replenishing their stock.

February scrap prices have moved sideways, except for prime grades of #1 bundles and busheling, and there is expectation that March and April may bring lower scrap prices.

Earlier this week I attended the “World of Concrete” convention in Las Vegas (don’t tell Pres Obama, but it wasn’t a junket, but a very worthwhile business gathering). Here I met with some customer, and suppliers and heard their plans for this year.

Las-Vegas-strip-night

The conclusion by general concensus is that this year may be slightly better than 2009, but there are no customers or suppliers who are taking long positions or betting steel prices will rise much more. Three steel mills said they hope scrap stabilizes and business levels will pick up, but none are talking of hiring more workers and increasing production.

The most pessimistic supplier is producing one third of that they did in 2008, and expect 2010 to be worse than 2009. They expect some new event to create another financial problem and for demand to drop somewhat from where it is today.

Overall, customers and suppliers are working under the new rules of the day, smaller tonnages, smaller workforce, tighter credit terms.

In football terms, this means buckle up your chin strap and call another safe running play up the middle and keep pounding the ball, hoping to prevail.

2010 is expected to be a tough low scoring game to be won by those who can adapt best to the new paradigm.

If you are inclined to bet the “over/under” on the Superbowl (or the steel market this year)…I’d suggest betting the “under”.

Steel Thoughts