US steel market winds blowing in a new direction

The political winds in favor of the US steel industry may be dying down, but the winds of two recent hurricanes -- Harvey and Irma -- may give the industry a boost.

"Sadly, the hurricanes might be what saves the steel market in the second half of 2017," said one American steel distributor. He reasoned that good old supply and demand may provide what politics has not.

Talk of the hurricanes' impact has temporarily replaced the possibility of massive tariffs and/or quotas on steel imports as the market wildcard.

In late July, President Trump said a decision on the ongoing Section 232 investigation into imports threatening national security would likely have to wait until after "health care and taxes and maybe even infrastructure" are addressed.

All three of those issues are profoundly nettlesome, so some steelmakers may be wishing Trump a hearty "good luck with that."

Now market observers are discussing the amount of imported steel damaged by Harvey and the likely surge in demand for domestic steel to rebuild damaged infrastructure, particularly in Texas and Florida, not to mention the need to replace steel-intensive washers, dryers, stoves, water heaters and refrigerators effectively decommissioned by hurricane-related flooding.

Observers also believe there were 500,000 to 1 million vehicles effectively junked by the hurricanes. This unfortunate scenario could be a beneficial double whammy for American mills. More automotive steel will be needed to replace those cars and trucks, and a surge in scrap steel from auto shredders will increase supply and presumably lower scrap prices for those same mills.

Market sources tell S&P Global Platts that when Harvey hit Houston, home to America's largest steel-importing port, in late August, there was a lot of steel on the docks.

At least some of that steel is damaged, particularly value-added steel like cold-rolled coil that is usually handled with kid gloves, including protections like wrappings and encasements.

Because of this and other hurricane-related port and river transportation difficulties, steel distributors and end-users must now buy more domestic steel to fill holes in their inventories. This could extend delivery lead times for US mills, creating fertile ground for mill price increases.

The 232 investigation result was originally expected in late June, but it has been delayed. Leaders of the Metals Service Center Institute late last week sent a letter directly to President Trump urging “swift, decisive action” on the probe and on Monday suggested that action could come soon, although the Department of Commerce has until January to file its report.

The delay is not the only negative development seen by US mills. Trump suggested he would take a more diplomatic approach to steel trade via bilateral negotiations and he also said he wanted his planned US-Mexico border wall to be transparent, which would preclude the use of massive amounts of steel for the 1,000-mile barrier.

Trump has faced funding and political resistance regarding the wall, as well as his $1 trillion infrastructure plan. But the hurricanes prompted him to quickly negotiate a deal with Congress, opening the federal wallet to aid Florida and Texas. The deal itself was controversial for political reasons, but was praised by many Americans as proper and needed government action.

Now that the wallet is open, who knows? Maybe more comprehensive US infrastructure spending will follow, which would be yet another boon to domestic steelmakers.