Steel Outlook

  /  Jan 1, 2019  /  
2018 was a wild ride for the steel industry as prices for the first two-and-a-half quarters of the year were on a straight shot up, driven almost entirely by Section 232 tariffs of 25% on steel imports and tough trade talk. Demand fundamentals in 2018 were solid, as companies had more to spend due to tax cuts, had more incentive to spend on capital investments due to changes allowing for immediate expensing of capital investments, and individuals benefitted from a declining unemployment rate, and slight improvements in wage growth. However, there was no significant uptick in demand that would have resulted in the price movements experienced in 2018. Rig counts increased in 2018 from 2017 levels, but are still well below levels prior to 2015. Domestic vehicle production remained solid, but was roughly in-line with 2017 levels. Construction activity in the US was strong in 2018, but roughly in-line with 2017 levels as measured by the Dodge new construction index for both residential and non-residential construction activity. The only possible explanation for the significant increase in prices in 2018 was that it was not demand driven, but rather almost entirely driven by a reduction...
  /  Jan 1, 2018  /  
We hold a bright outlook for the domestic steel industry in 2018. There is a backdrop for improving demand spurred by the 2017 Tax Cuts and Jobs Act. Lower corporate income tax rates and the ability to expense capital investments will free up cash flow and incentivize durable goods, equipment and machinery purchases. Steel supply will remain tight due to limitations on low-priced imports. Tariffs already in place established a meaningful buffer. In addition, the Trump Administration has been clear about its willingness to enforce current trade laws and find (and maybe use) obscure laws like Section 232 to “protect” domestic producers. Now that the tax bill has passed, it is expected that the government will be able to pass a bipartisan infrastructure spending bill in 2018 that will boost metals demand, particularly if there are Buy America provisions. Steel and scrap prices will be supported by a weaker U.S. dollar. Anticipation of easing of fiscal stimulus in Europe and Japan is being priced into the market. In addition, financial markets are expecting inflation to rise as tight labor markets collide with a rebound in domestic manufacturing. Foreign manufacturers may...
  /  Feb 1, 2017  /  
There has been a lot of rhetoric out of Washington about tariffs, tax cuts, loosening regulations, infrastructure spending and other buy-America, pro-manufacturing policies over the past few months. The Trump administration proposed to boost growth to 4% and to create millions of jobs. What gets lost in a lot of the hype are actual policy specifics. One issue that is receiving attention, but is largely overshadowed by the catchier news about wall building and immigration, is the idea of a destination- based tax (or border-adjustment territorial tax). This scheme was proposed by Republican Congressional leaders, and given their control of the House, Senate and White House, its likelihood of getting approved is higher than ever before. If passed, it could have a tremendous impact on the steel industry, both positively and negatively depending on your customers, suppliers, and certain other factors.