Steel Macro Trends May Not Drive Grain-Oriented Electrical Steel

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Many grain-oriented electrical steel market participants know that macroeconomic drivers and general steel price trends often diverge from GOES trends.

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Comments from the most recent Steel Market Update summit at the end of August suggest it may be hard to “buck the trend.”

Macro Trends

What are these macro trends?

  • Steel demand looks weak overall and overcapacity will continue unabated. According to Tony Taccone, Partner at First River Consulting, “global steel demand has stalled and there will be no growth going forward.” In addition, Taccone indicated the world has 700 million metric tons of overcapacity and the problem is set to become worse.
  • Trade cases will put the kabash on Chinese export growth. China has produced too much steel at unsustainable prices and has exported materials at the marginal cost of production, according to Taccone.
  • Automotive demand may have peaked and aluminum demand may weaken steel demand.

Despite weak demand in some sectors, others paint a more positive picture. According to Alan Beaulieu, Principal of the Institute for Trends Research, many factors look more positive for demand including light vehicle production, U.S. industrial machinery production (recently turned positive), a booming office building construction market, a stabilized oil and gas extraction market and healthy global demand for crude oil.

GOES_Chart_September_2016_FNL

In addition, Beaulieu pointed to rising mining, electricity generation and manufacturing sectors, that certainly bodes well for power equipment production and demand.

Micro Trends

With the loss of Allegheny Technologies, Inc. capacity for GOES, the uptick in electricity generation and construction, and the more bullish outlook for other commodities and non-ferrous metals, we might expect GOES prices to creep up accordingly.

Two-Month Trial: Metal Buying Outlook

Though the macro trends paint a slightly more negative picture for steel prices in general (negative for producers, positive for buying organizations) for the near term, GOES markets don’t cleanly align with steel markets. September marks the second month of a rising price trend.

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