Covid-19 has brought new challenges to the American steel market, which was already pursuing a new normal amid the uncertainty and turbulence caused by the tariffs Donald Trump’s government imposed on imports coming from countries like China. On MM Steelclub’s American Steel and Metals Market Virtual Conference held on 19 June, prominent speakers from the region gave their insights into the financial and end user perspectives on the steel and metals industry in the United States.
On the financial side, the good news are that there’s money available and entities are willing to invest it, said Max Schlubach, Vice President in Private Banking’s Commodities and Logistics at Brown Brothers Harriman: “There are still trillions of dollars sitting on the sideline. Remember before all of this started everyone was talking about this uninvested capital? That’s still there and it’s still looking for opportunities”.
In spite of Covid-19 destroying demand across commodity sectors “unlike anything we’ve seen before”, Schlubach said access to both private debt markets and public capital markets is still open to capitalised companies. However, a higher cost will have to be paid: “Credit is repricing, but it’s not drying up on the private lending side”. He suggested to “test those waters a little bit”, although he warned there hasn’t been “a lot of new credit flow to market” lately.
As Schlubach said, the effect lockdown restrictions have had in prices of steel products such as hot rolled coil hasn’t been as “dramatic” as it’s been on other sectors, like energy. Steel prices have been under pressure for some years now due to the so called trade war between the US and China, and tariffs being extended to other steel producing countries. After an initial spike triggered by the Section 232 tariffs, prices had decreased significantly by the time Covid-19 was declared a pandemic, making them fall even lower.
More steel producing projects
Section 232 may not have achieved a long term jump in prices, but it did accomplish to bring back confidence to the US domestic steel production. Many American steel mills have increased capacity and started new projects since then, said Matthew Black, General Manager at Beshert Steel Processing, home to the largest temper mill in the world.
These new initiatives make him believe that there’s nothing on the “immediate horizon” that suggests a “massive increase” in US steel prices could occur in the next two to three years. “There’s just simply too much new capacity that’s coming along. And, quite frankly, I think we may see a pricing war between the integrated flat rolling mills and the mini mills, as a lot of this new capacity is brought on. And there, obviously, has to be a battle for market share”, he said.
Black thinks the American and the global markets have settled into what Section 232 was going for and that if tariffs stay beyond Trump’s term, domestic steel pricing “will stay about 15% to 20% higher than the Global FOB”.
For him, the key to succeed in the steel industry nowadays resides in learning to make money during volatility.
“We used to complain about the volatility, it used to be very disruptive to the business. But really, in the last 10 years, I think most good companies that have survived and will continue to survive, actually, welcome the volatility. It creates opportunities to take advantage of distressed inventory, to buy at weaker prices and then to gain some market shares and penetration”, Black said.
Along with Max Schlubach and Matthew Black, there were other six panellists at MM Steelclub’s virtual conference: Indium Corporation’s Donna Vareha-Walsh, QSL America’s Venkat Saranadhi, HedgeStar’s Craig Haymaker, Priefert’s Chris Shipp, Mining for Facts’ Patrick Ryan, and Charles Edwards Management Consulting’s Peter Zimm.