US hot-rolled coil prices retrace. Source: MetalMiner IndX.

Since November — Coinciding with Donald Trump’s victory — U.S. steel prices have been on a tear.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

However, in February momentum started to cool down. It’s now buyers’ job to determine whether this is a major peak or just a pause within this bull market.

Chinese Steel Capacity Rises in 2016

In February, a report by Greenpeace East Asia and Chinese consultancy Custeel stated that despite China’s high-profile efforts to tackle overcapacity, China’s operating steel capacity increased in 2016. The report says that 73% of the announced cuts in capacity were already idle — in other words the plants were not operating. Only 23 million metric tons of cut capacity involved shutting down production plants that were operating.

Meanwhile, some 49 mmt of capacity that had previously been suspended was restarted, and 12 mmt of new operating capacity came online. That means that China added 37 million metric tons additional operating capacity in 2016. 

Hot-rolled coil prices in China also take a pause. Source: MetalMiner IndX.

This news is bearish for steel prices and it is likely contributing to lower steel prices in February, both in the U.S. and China. (more…)

Reuters reported that U.S. stock index futures rose to record intraday highs on Tuesday as oil prices surged and investors assessed earnings from top U.S. retailers.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

The theory is share prices are being driven higher by a strong oil price and retailers who are reporting better than expected store sales. Wal-Mart Stores, Inc., Macy’s, and Home Depot sales are all up on robust consumer demand. If stock prices were supported on consumer confidence alone, we could see an argument for this bull run in share prices to continue.

Stocks are up

Stock prices continue to rise thanks to strong retail sales and oil prices. Source Adobe Stock/Tiagozr.

There is plenty of optimism around. Donald Trump’s much-vaunted infrastructure projects are expected to create significant demand and have an inflationary impact on the economy… when they eventually see the light of day. 2018 At the earliest is our expectation since few are shovel-ready and all will have to get past Congress first. Meanwhile, though, the economy is adding jobs at a steady rate and unemployment is low.

Oil Supply

However, if Reuters is right and shares are being driven higher in part due to the oil price, we have a few concerns. The oil price was driven higher by the Organization of Petroleum Exporting Countries‘ production cap agreement last year, an agreement to which both major OPEC producers and 11 non-OPEC countries like Russia signed up to in an effort to reduce excess production and bring the market into balance by the summer. (more…)