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John Anton
Hello. Good afternoon, good morning, depending on where you are in the world. I'm John Anton, and I'm going to start with a steel overview. And as before, we really can't look at it globally. We have to look at it Eastern Hemisphere, Western Hemisphere. .
The main takeaway for steel everywhere is that it is weak. Pricing, it is a buyer's market. There is good inventory. It's not over production. Production is barely up. It's buying is weak. And therefore, they need your business. .
Prices can't fall much more. In the Eastern Hemisphere, they're already at breakeven or losing money. You can't lose money forever. You can lose money for a while, but then you run out of your bank account, and they turn off the lights and you have to shut down. You can't buy more iron ore and coal. They had a rally. It fizzled out, and that's really bad news for the steelmakers. It's good news for buyers, short term. .
Prices in North America are falling. They should find the floor by the second half of the year. The U.S. never came down fully from the 2021, 2022 spike. That's really what's going on. The rest of the world came down fully. U.S. has been slowly coming down, so the U.S. still has more downside to go. .
Demand, I will put it bluntly. I can't think other than aerospace, which is strong, I can't think of any market anywhere in the world where demand would justify a steel price increase. However, aerospace does bleed over into energy in some of your valves and fittings. .
So carbon steel is loose. Carbon steel is in surplus. Carbon steel has weak pricing. Alloy steel, which I'm not going to get into this deeply, but know that it is a different situation, mostly driven by aerospace. But it does bleed over a little bit into energy. Other than that, if they ask for a price increase based on demand, it is not a good story. It is simply not, there's not enough demand to drive any price upside. .
Supply is nearing or into surplus. People expected 2023 and 2024 to be big recovery years. Mills overproduced. '23 was flat at best. That increase in production, therefore, had nowhere to go. So we are seeing too much steel. We're seeing very short lead times. We're seeing strong inventory. At worst, it's in balance. And the only way to bring you the balance back since demand is not going to go anywhere. We're going to have to see production cuts in mills around the world. .
Mainland China. Since 2022, prices have been at or below cost. Late last year, prices were well below cost. Iron ore and coal are very expensive. Steel prices are very weak. A price rally happened from November through January, but it relapsed, and they're back at or below cost. .
We have rising prices based on the assumption that people, that mill production will be idled. If capacity isn't idle, they stay at cost, but they have been losing money. It's not just theoretical, it's actual. .
Inventory on the Shanghai Futures Exchange. That is not the entire Chinese market and it's not the entire global market, but it is indicative. The three different rates traded there are wire rod, rebar and hot-rolled coil. The inventory is 2 to 3 times higher than normal. What I do think is it prevents Chinese prices from improving very much in the first half of the year until this inventory is worked out. It does create downside risk. .
So looking at the pricing, looking at what the objective things that we have going on, starting out with hot-rolled coil, kind of the main price, if there is a benchmark, this is it. U.S. increased the most during the pandemic, then Europe. India increased some, China increased some, but not nearly as badly. .
Most of the rest of the world has reverted. But if you'll notice the floor for India, the floor for Europe and even the floor from Mainland China is above the 2019 level. Things don't come all the way back down. Labor is more expensive. Energy is more expensive, transportation. Every basic input cost, except for scrap, is higher than it was prepandemic. .
So cost did not come all the way down. The U.S. came most of the way down, had a spike a year ago, basically, because the mills didn't think they -- I don't know if they thought they could get it for the entire year, but they did get it for 4 months. And during that time, they got very good pricing. So they did it again this year. .
And U.S. prices were just over $700 in late October. They went to over $1,200. That's about an 80% increase in 3 months. They're already under $900 and falling. So the spike is completely unwinding in the U.S. It will bring it back down going forward. If they did it in '23 and they did it this year in '24, we have a spike in '25. Just -- if you do it twice and you get away with it, you'll probably do it a third time. .
We believe the second quarter will be a good time to buy. Prices, if they liquidate the inventory in China, that's downside risk. But that's almost the only downside risk. Liquidating the inventory means they'd be selling below cost, and you can't do that for long. .
On a cost basis, prices really can't get much lower other than inventory liquidation. So this is a good time to buy. We don't see a lot of upside in most of the world. And even in the U.S., the upside is not until late -- basically, the fourth quarter, but it can't get a lot lower, and there's always some upside risk. So we would say, second quarter is a good time to buy, but you don't necessarily have to rush. .
Now other products have ever built for profile, particularly here again in the United States, but to some extent, in Europe as well. The profile in Asia is very similar. The bar products, sheet products, the flats are following about the same profile. They're at or look below cost. They can't go much lower. .
One thing to note is India had escaped, and India was staying well above China, but India finally fell. The prices were so low in Mainland China that they have pulled down India in the last couple of months. India is a very good bargain. .
If you are a Westerner buying in Europe, they did get some price increases for plate and bar. They're having a very hard time holding on to them for plate. But bar, they're able to hold it mostly because they've cut production. .
In the U.S., prices have been far above everyone else in the world. They are finally coming down. They don't reach global standards, but it will be a convergence. So for plate and bar, the longer you can wait, the lower the price you pay in the United States. It's definitely a weight in the United States. It is a buy as needed in most of the rest of the world. .
Electrical Steel. This is the biggest problem. It has been the biggest problem. It is the biggest problem. It will be the biggest problem for at least another 3 years, probably another 5 years. The only way this problem will be alleviated is building new steel mills. .
There's a new source of demand in electric vehicles that did not exist before. There was plenty of capacity to handle motors, generators, transformers. There's not a plenty of capacity to handle all the traditional markets, plus electric vehicles. It requires new mills. New mills take 3 to 4 years at best. .
So this price is high. It came down marginally. There's not much downside left. And in fact, we just saw price increase announcements in Mainland China, which is about the only source available globally for any excess and about RMB 200, which would be about USD 40 to USD 50. It's going to probably go up even more than that. .
Lead times, we are hearing, for the largest industrial size motors and generators, 2 to 4 years. For transformers, we're still hearing 3 to 6 years. And that relates back to the steel, and that's really the biggest problem. .
We are not hearing a real trouble in motor lamination, motor lam for small motors, for handheld appliances, things like that. I'm hearing from multiple sources, that's not a problem. What is a problem is non-grain-oriented and grain-oriented for industrial size applications. And again, that's not going to get better until new capacity is added. .
Prices are great for stainless steel, particularly the 300 grades in everywhere other than the U.S. by now because they're going to get worse in a hurry. And the U.S., even here finally is hitting bottom, and it should be turning by the second half of the year. .
The aerospace market, everything is very strong. Yes, there are production troubles at some of the aircraft, but the order book is still full, and they're still working. And steel is minimized in airplanes. Steel is heavier than aluminum, and it's heavier than titanium, but you do use it quite a bit for some for faster -- a lot for landing gear. .
What you do, you're going to want the best steel in the world, so you can get the best strength to mass ratio you can to keep that weight down and keep your strength up. So it's your higher-grade steels, demand is very good. A lot of these steels, again, are used in your highest quality energy, high pressure, high temperature, energy and chemical valves and fittings. .
So that's where it bleeds over into the larger industry. You can bleed into -- hydraulics can use it. Energy bios can use it. It arises out of aerospace. The other industry doing well is energy. But actually, for steel, it's a much smaller consumer of the specialty grades that is aerospace for most of the companies. So energy is a boost, but aerospace is really where the pressure comes from. And the higher quality it is, the harder it is to get. .
Lead times for hot-rolled carbon sheet in the U.S. are 3 weeks. Lead times for a lot of the aircraft grade alloy steel, 50 to 70 weeks. That's the easiest indicator I can come up with. .
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