Jan 2017

Riding the Trump Effect

ASD leaders look favorably on their prospects for 2017 under a new administration.

By Tim Triplett, Editor-in-Chief

Members of the Association of Steel Distributors are optimistic about their prospects for 2017, and not just because of the late-year bump in steel prices. They expect demand to improve along with the economy under the new administration in Washington.

A series of price increases by the major mills in November and December boosted the benchmark price for hot-roll past the $600 per ton mark, up from less than $400 in the first quarter. Recent trade case rulings have sharply curtailed low-priced imports from China and other parts of the world. Mills in the U.S. are rushing to fill the breach.

“The new administration coming in with its culture of protectionism has definitely created the Trump Effect, and the domestic mills are rubbing their hands together,” says ASD President Andy Gross, president of Alliance Steel, Bedford Park, Ill.

“Trump is coming out swinging,” says Jim Barnett, president of Grand Steel Products, Wixom, Mich. “He is sending a very strong message overseas that he is going to protect the home market, particularly the steel industry.”

U.S. mills are scrambling to reclaim market share formerly held by imports, Barnett says. The upward price trend is generally good news for service centers, which have seen the value of their inventories appreciate significantly. “The banks love it, particularly if you collateralize your bank loans with your inventory,” he adds.

The benefit to service centers varies widely, depending on their inventory position. Many sell down their stocks toward the end of the year, then stock back up in the first quarter. Some, like Alliance and Grand Steel, bought ahead of the price hikes in the fall.

The Commerce Department reports that imports of steel into the U.S. declined by more than 16 percent through the first 11 months of 2016. Concerns that this lack of material from offshore will lead to short-supply situations are unfounded, say Barnett and Gross. “There is a lot of excess capacity at the mills for long products. The big pressure point will be flat-roll for the next six months, with domestic mills already producing at 85-95 percent of capacity,” Barnett says.

Domestic mills can always ramp up additional production, Gross says. The new Big River Steel mill in Arkansas just began commercial deliveries, adding capacity to the market. “I don’t believe foreign will be completely shut off. There will still be some material coming in,” he adds.

Both Alliance and Grand Steel saw strong sales in 2016. Looking ahead to 2017, Gross expects more of the same. He predicts auto, transportation, construction, appliance, even energy, will trend in a positive direction this year. “A lot of people think unequivocally that 2017 will be a banner year. I’m in the middle. I think the lack of foreign steel will create room for one or two more price increases, as long as the economic news on GDP and manufacturing is positive. We should be able to really enjoy the next five months of business. Beyond that, it’s questionable,” he says.

Gains this year will not be all price-driven. Demand should improve, as well, Barnett predicts. “You will see increases in long products demand due to increased construction. You will see a robust automotive sector. And manufacturing itself will have a banner year.”

The tubing market is a bellwether for steel because tubing goes into so many manufactured goods. The strength in tubing should translate into demand in many other sectors, Barnett says. Grand Steel’s sales of flat-roll to tube mills are growing. “Tubing is having record years, and we are looking to support them to a greater extent in 2017.”

Development of advanced high-strength steels for the automotive sector has created a new opportunity for service centers. AHSS is generally considered a mill-direct sale to the auto industry, but high-strength coils are beginning to show up on the secondary market, Barnett says. Coils that don’t pass muster with their original buyer need to be utilized in some fashion, even if for an application that would not necessarily call for such high-strength materials. “Steel producers are looking to the service center industry to help get that product consumed in some way, shape or form other than the way it was originally intended. And that’s our job. That’s what we do,” he says.

Finding alternative buyers for high-strength coils may be more about their price and availability than their hardness. “It will take some education and some experimentation on the part of both the producers and the service centers to utilize some of these new grades of AHSS,” Barnett says, but service centers with the equipment and expertise to level and slit the new high-strength steels will have a competitive advantage.

Lisa Goldenberg, president of Delaware Steel of Pennsylvania, Fort Washington, Pa. says her company experienced a much better year than anticipated in 2016, “and I expect 2017 to be better than 2016. Not necessarily in terms of margins, but our volume will be up,” she predicts.

A shift in trade policy under the new administration could shorten supplies and run up steel prices even further, she notes. “It’s exciting to have a future president who wants to talk about steel. Having it on the agenda can only lead to good things.”

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Saturday, January 20, 2018