In the second post of this three-part series, we took a look at how scrap prices affect the global steel market picture for 2013.
But much of the current and future US steel climate comes down to economic and legislative uncertainty.
As long as the government continues seesawing over the fiscal cliff, steel companies and other manufacturing businesses won’t know how to lock down their investment approach.
“I’m a little import-centric, but it seems this time of year there’s inventory liquidation. States have inventory taxes. Import arrivals are not doing very much. Some [inventory] goes to bonded warehouses to avoid taxes. [It looks like we’re] setting the stage for an inventory-driven price run-up in early part of 2013.”
When I asked Phelps and Phillip Hoffman, who spoke at the same steel conference, if they could give two or three tangible strategies that companies should focus on to weather uncertainty in the year ahead, Hoffman pointed to hedging.
“Billet futures are something to look into,” he said, making it clear that he wasn’t recommending it outright.
For the mainly steel service-center audience, Hoffman also pointed to the inventory divide between steel mills and distributors/service centers. Instead of mills operating on a 30-day inventory basis, as they currently do, he said, they should keep 60-day inventory.
Phelps, to distill it to a sentence, basically told distributors to not be afraid of holding more inventory.
The capital costs related to holding metal were prohibitively expensive before, but now with capital costs so low, we’re starting to see centers holding more, and then be able to turn around and sell right away when they get an order, Phelps said, as opposed to a traditional “back-to-back” situation — having to have a customer lined up before buying the material.
But, he said, “I think we’ll see much longer pricing cycles, and you may see importers go back-to-back-to-back again.