Domestic steelmakers welcome the end of Section 232 investigation

With the Department of Commerce's Section 232 investigation complete, imported steel could get a lot more expensive in the coming months.

Secretary of Commerce Wilbur Ross submitted the Section 232 report on steel mill product imports and their effect on U.S. national security to President Trump Jan. 11. The president now has 90 days to decide what, if any, action is necessary to protect the U.S. steel industry.

Details of the report have not been released. In its announcement, the Commerce Department said a summary will be published in the Federal Register after the president makes his decision. Any confidential business or classified material will be removed from the report before it is made available to the public.

“The statute, as I read it, requires the report (with confidential and classified information deleted) to be published. However, the Commerce Department is taking the position that the report will only be published after the president announces his decision on 232,” said Washington trade attorney Lewis Leibowitz. “President Trump has 90 days to decide what, if anything, to do about steel. The decision could be announced any time between now and April.”

The American Iron and Steel Institute (AISI) and the Steel Manufacturers Association applauded the submission.

“The steel industry welcomes the news that the secretary of commerce has formally submitted his report to the president in the Section 232 investigation into the impact of steel imports on the national security,” wrote AISI President Thomas Gibson in a statement. “We are confident that we have made the case that the repeated surges in steel imports in recent years threaten to impair our national security, and we look forward to the president’s decision on the appropriate actions to address this critical situation.”

However, industry pundits aren’t united in their opinions as to whether Trump will put prohibitive duties or quotas on foreign steel. For instance, U.S. farmers certainly would be affected if penalties were applied to foreign steel because their agricultural exports could be targeted in retaliation.

Steel buyers will need to watch the markets very closely. As of mid-January, steel and plate prices were rising, and pricing momentum was on the side of the domestic steel mills.

Service Centers Flat-rolled Inventories Now Over Three Months

Over the past six months, Steel Market Update has been canvassing flat-rolled steel service centers as we try to better understand the number of months of supply being held as of the end of each month. Steel distributors now hold three months (3.03 months’ supply) based on the responses we have received from our service center data sources.

We have seen the number of months of supply rise from 2.7 months at the end of July and August 2017 to the current 3.0 months as of the end of December.

The number of months of supply is not a surprise to the service centers that provided comments about the month of December. It is normal for those associated with contract customers to protect against price increases by buying inventory ahead of the new year. It is also normal for shipments to be lower during the month of December because of the holidays and inventory taxes that are levied in certain states.

About 58 percent of the responding companies reported having increased the number of months of supply by the end of December. Another 31 percent reduced supply, and 11 percent reported the number of months as being the same as they reported at the end of November 2017.

Here are some of the comments made during the collection process:

• “We are at 3.1 due to softer shipments in December and higher receipts for our contract customers. Our order [rate] is down, so we expect inventories to fall over the next eight weeks and settle back at a more normal number.”
• “We had 2.36 months’ supply at the end of December. We would have built inventories a bit more (closer to 2.5 months), but had a strong sales month in December. Sales in December were 13.7 percent more than November. Most of the increase in sales was due to price increases. We look for more price increases as we enter 2018.”
• “Inbound receipt of material from vendors was limited and held off where possible. This contributed to a drop in the month’s inventory on hand. Pull rate from customers was lower than anticipated, and the above action helped buffer this issue.”
• “We were just over four months of flat-rolled inventory at the end of December, at about 4.1 months on hand. Down a little from earlier in December. We shipped strongly in December and do expect a strong start to the year. We did ship more flat-rolled this December over last December, and shipped strongly until Friday, Dec. 22. Our solid shipments lasted later into December than is typical with the holidays approaching. We also shipped better last week than usual (but well below earlier in December, due to the holidays). Our overall inventory level is still relatively high, based on industry standards. But we have various customers locked-up on blanket orders, and it was our goal to keep steel in the pipeline for key customers through Q4 and into Q1. We expect the market to strengthen further from here and will be very happy we have the inventory we do if the market does heat up a little. Our main customers are forecasting strong demand into the first half.”

All data providers are flat-rolled steel service centers located in the U.S. We are also gathering information from plate distributors, but we are not yet ready to provide a separate index on plate as we need to add more distributors to our list of data providers.

We produce two reports from the data collected: the "Flash Report" and the full report. The “Flash Report” is produced within a few days of the last day of the month based on information supplied by approximately 50 percent of the data providers. The “Flash Report” is provided to the service centers that provide inventory information to Steel Market Update. We then produce our full report, which we try to complete on or about the 14th day of the new month.

The Steel Market Update number of months of supply flat-rolled inventory report has nothing to do with the Metals Service Center Institute (MSCI), which produces its own inventories and shipment report around the middle of the month.

SMU Steel Summit Conference Registration Open

Steel Market Update hosts the largest flat-rolled steel conference in North America. This year’s conference will be held Aug. 27-29 in Atlanta. You can find more details about the conference at www.steelmarketupdate.com.

Make Plans to Attend the FMA Annual Meeting

I will be in Scottsdale, Ariz., March 7-9, moderating a panel at this year’s FMA Annual Meeting. Details can be found at www.fmanet.org.

Please look me up if you are attending the FMA meeting.