July 2024 Issue

Demand

• The long waited “cooling” of the construction industry has arrived in most markets across Canada the USA. It is apparent to most distributors; competition for new starts is fierce.
• Our new normal interest rate environment is impacting new construction in most markets, it will be interesting how financing costs will impact importers, mill and distribution on steel products.
• Noteworthy is the increase in infrastructure and mining projects. From nuclear power to lithium and gold mine investments in NE Canada region.

We have always been contrarian: when most say stop, we advise you to go.

Supply

• North American steel mills invested in capacity throughout the pandemic. Purchasing or building new mills. This has impacted continuous price decreases in the last two quarters to keep the machines on. We expect mill “maintenance” in NA in the coming months to curb the NA prices upward.
• Ocean freight rate increases in the last quarter and shipping lane closures (Suez Canal) have resulted in shipment delays and potential cancellations of import orders. These events could slightly affect supply in certain markets in the coming weeks.

Geopolitics

• The Ukraine and Israeli-Hamas war have had far reaching impacts on global steel trade. As all melt and pour steel from Russian is no longer accepted in major Western economies and the Gulf region is split between pro trade states and Hamas backing states.
• US-Sino trade issues over EV vehicles will further fracture our North American stance on Chinese industry.
• We expect international trade to continue to regionalize at a global level. Import steel is becoming harder to source on the medium and long term timeframe.
• As Canada enters an election year and the USA is in one, we see what is typical; hesitant purchase on a lead time with uncertain economies. It’s our view that both new governments once elected will look to place tariffs on steel imports more so that when is already in place. In effort to collect more tax dollars someway as conservative. This will increase the cost of steel in NA further, a positive thing.

Raw Material

• HRC is approaching lows that we have not seen since pre pandemic 2020, furthermore NA HRC is converging on EURO HRC as an infliction point. Whenever this event happened we have seen a sharp increase in all sources of HRC. A deeper analysis also reveals a pattern since 2022, where we see a drop and then another drop. We believe we are in the bottom and will see increases in HRC in the short term horizon (within Q324).
• Scrap, Iron ore and coking coal are all in lows, we expect all these raw material inputs to increase in the short term as well.

Freight

• Ocean freight rates have increased drastically in the last 3 months.
• Containers from SE Asia to West Coast ports have gone from $1800/container to $10000/container. This represents an increase of US 300/ST or CND 400/ST in costs.
• We don’t believe these increases are “real” and expect prices to come back down in the short term.
• The Suez Canal “closure” has also impacted steel shipments from the Gulf in lead time and costing landing in ports across NA impacting price and potentially supply in certain markets.