Steel Price Outlook for 2012 – Part One

Watching steel price trends reminds me of a case study question a potential employer once asked me.

The case study goes like this “Using deductive reasoning, how many pet groomers are in the US?” Without getting into all of the details of my answer, let us say, I began answering the question logically¦examining the number of people in the US, the number of people that own pets, the number of people that own pets that require grooming and so on and so forth.

But then I made my tragic mistake. I said to the interviewer: “If I opened up an NYC phone book, I’d likely see no more than 100 pet groomers, so the answer is: 5,000.” As it turns out, that answer wasn’t too bad (the correct answer is 3,500). I gave the same case study to my husband, who answered in perfect McKinsey logic: “310 million people in the US; 25 percent have pets, 25 percent of those pets require grooming, the average number of grooming trips per year might be four, so…35,000.”

“35,000!” I shrieked (in a restaurant, no less) “My gosh, how many McDonald’s do you think there are?”

“Yikes, was his reply, “my answer is way off.

And yet, ten out of ten management consultancies would have hired my husband because he used perfect deductive reasoning, whereas I jumped to a more informal “intuitive decision (which, luckily for me, has since been validated by the Harvard Business Review). So when I look at steel price trends, I tend to look for patterns and rely upon my intuition, leaving the quantitative analysis and deductive reasoning to the brainiacs.

Intuition and Steel Prices

Not so long ago, I went on record here stating that steel prices tend to hit a trough in November and slowly increase throughout the balance of Q4 and into Q1. The underlying data supports that earlier assertion:

Source: MetalMiner IndX

But folks, something rather bothers me right now. Steel plate prices have underperformed the rest of the mix:

Source: MetalMiner IndX

(Note: This data comes from our all-new, soon-to-be-launched MetalMiner IndX, Version ‘2.0’)

Perhaps we can explain some of this by examining the various end markets that consume steel (for example, ocean freight rates remain severely depressed, according to Gerdau Market Update). Ship-building uses a substantial amount of steel plate, so that may serve as a drag on plate prices. Agriculture spending has also declined, according to the Core Report, adding additional fuel to the fire.

So what do the steel price tea leaves tell us about pricing going into the New Year? Check back in for Part Two tomorrow morning for more details.

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