US long products import licenses declined from a peak of 462,000 short tons in April to 238,000 short tons in May. About 65% of this decline is due to Turkey, which did not apply for any rebar or wire rod import licenses in May (nor did it in March). In comparison, Turkey’s rebar licenses were 105,000 short tons in April while wire rod licenses were about 39,000 short tons.
Martin Wolf, as he often does, wrote an interesting column in the Financial Times recently called The market sets high oil prices to tell us what to do. As $1,000/ton steel becomes an accepted fact of life it’s worth asking what the market is telling us to do about high steel prices.
Martin Wolf offers six ‘do’s and ‘do not’s’ as responses to the price of oil. Here they are and how they apply to steel.
1. Do not blame conspiracies or speculators
The steel industry version of conspiracy or speculation theory is ‘insanity’ theory. Current steel prices are regularly called “ridiculous” by some observers. But calling prices ridiculous cuts off any further, more reasoned analysis as to why prices of $1,000/ton or even twice that might not only be rational, but sustainable in the foreseeable future. Avoid calling prices ridiculous. It doesn’t help, especially if they go up again.
2. Do not blame emerging countries for their growing demand
It seems obvious that soaring steel demand in developing countries is a good thing for most industry participants, sellers and buyers. But sometimes these emerging economies are blamed for the few negative aspects to the industry’s current good fortune. China, India and the like have helped drag the industry out of its long term poor performance and we should be thankful at least for that and hope their growth continues.
3. Adjust to high prices by becoming more efficient in the use of oil
Just as with oil, the developed world has been profligate in its use of steel. We thought we could afford to be when it cost only $200/ton. But in Pittsburgh, we still use it to cover potholes in the street. In many manufacturing processes, yield losses of 25% or more are commonplace. We need to be more efficient in our use of steel because it isn’t cheap any more and it’s unlikely to be for some time. Smart manufacturers like Toyota recognize this.
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Licenses for long products imports into the US increased from 257,000 short tons in March to 462,000 short tons in April, reaching their highest levels since July 2007. Rebar licenses increased from 77,000 tons in March to 189,000 tons in April, mainly due to Turkey, which didn’t apply for any licenses in March but applied for about 95,000 tons in April. Wire rod licenses increased from 78,000 tons in March to 159,000 tons in April; about 35,000 tons due to an increase in licenses from Turkey and the remainder from other countries such as Germany and Brazil. The spreadsheet below will be updated with March actuals as soon as they are available.
MMK’s planned steel mill in southern Ohio just received final permits from the Ohio EPA. You will be able to see the permits (though they’re not yet online) at the Ohio EPA site. A number of other application documents were linked to from this post back in February.
Today US Steel reported first quarter 2008 financial results. EBITDA per ton was $62, which is up from Q4 2007 but down from the 2007 average of $78. There were some special charges (inventory adjustments and a litigation reserve) which reduced reported operating income and EBITDA. Excluding these charges, EBITDA was $71 per ton, which is still below US Steel’s peers. To see how US Steel’s results compare to its peers, check out the Nerds of Steel Earnings spreadsheet.
A transcript of US Steel’s first quarter earnings conference call can be found here.
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