Global trade reform continues to be the driving force of volatility in commodity markets. The White House has signed a partial “Phase 1” trade deal with China however this will have little impact on copper and steel pricing into 2020. Both US and China demand for industrial metals continue to soften as US GDP growth remains near 2% and China GDP growth is at a 30-year low.
In the past two years, we have seen steel pricing rise 55% in six months and then collapse by half over the next year. As with many struggling industries, there is consolidation and capacity reduction. Tenaris was just cleared on 12/17/19 to purchase TMK Ipsco’s ERW mills, US Steel is finalizing its stake in Big River and Cleveland-Cliffs purchased AK Steel. US Steel has already closed two US based blast furnaces due to high costs of production compared to more efficient electric-arc operations by the largest US steelmaker, Nucor. We anticipate further capacity reduction as older, more expensive operations are closed by AK Steel, US Steel and Arcelor Mittal.
Domestic steel will continue to struggle into 2020. Energy infrastructure is slowing down (rig counts are at 2017 levels), automotive remains soft and steel imports have only been reduced by 20%.
Category price and lead time update:
- Domestic A53B GrB, A53F GrA & A135/A795 Pipe – We expect minor price increases in Q1 2020 followed by stabilization near 585/ton into late Q2. President Trump may tariff Brazil imports creating a short-term spike however soft demand will not allow for higher pricing through the first half of 2020. Lead times are short for standard and API products.
- Import A53B GrB – Importers are hesitant to build off-shore A53B inventories while the import/domestic cost delta remains below 10%. We do not see import 12” and down A53B as a significant cost savings opportunity in Q1/Q2 2020.
- Copper Tubing – The US / China “Phase 1” partial trade deal has driven copper price up 8%. The largest global consumer of copper, China (50% of overall global demand), is at a 30-year low for growth. The maximum potential increase in Q1/Q2 2020 would be 10% but we do not expect an increase in the first half of 2020.
- Domestic Weld Fittings & Flanges – The 2018 ~7.5% increase on weld fittings remains in effect. We do not expect any price movement on WPB weld material in the first half of 2020. Weldbend aggressively reduced flange pricing in Q3 2019 to compete with import pricing. Lead times have greatly improved for commodity material.
- Import Weld Fitting & Flanges – Pricing and lead times have shown significant relief in Q4 2019 since Pantech (Malaysia) was exonerated from their circumvention trade case. While some importers and overseas manufacturers remain under the microscope restricting imports, we expect further cost reduction and shorter lead times in Q1/Q2 2020.
- Copper Sweat / Press –Global demand remains soft (mostly due to relaxed China infrastructure growth) and inventories are in surplus. For 2020, we only expect a 5% increase in early 2020 with stable pricing throughout the rest of the year.
- Iron Fittings – Market increased 16% in 2018 due to rising scrap prices. Price should remain flat through Q2 2020. Steel scrap may show minor price escalation heading into the second half of 2020. Lead times are very low.
- Hangers, Strut & Threaded Rod – We saw a 24% increase in 2018 as manufacturers around the world ramped up capacity to keep up with world demand. Lead times remain low however the US Customs and Border Protection agency may stall containers at the port for inspection which could disrupt domestic warehouses from being replenished.
- Bronze & Iron Valves – All of the commercial and industrial valve manufacturers had several increases in 2018. We saw 3-10% in Q3:2018 and another 5-12% in early 2019. Production capacity is stretched as demand continues to be strong.
- Victaulic Grooved Product – Victaulic published their annual increase of 8% in Q1 2019. They carried two increases in 2018 due to increased demand on their US and Chinese foundries. As of now, we expect a single increase in the first half of 2020.
- Stainless Steel Pipe, Fittings & Flanges –We have seen numerous increases in 2018 resulting from global supply constraints. Domestic stainless producers are charging high premiums as reduced import inventory is available. We expect to see stainless remain flat through Q1 2020. Lead times low on commodity material.
- Forged Steel Fittings & Seamless Nipples – In 2018, domestic producers Phoenix (Capitol) and Bonney Forge filed trade cases with Both-Well (China) and MeGA (India) resulting in a 25% increase of domestic product. Domestic producers are now targeting India with trade cases. We expect Q1/Q2 2020 pricing and lead times to remain flat.
- Forged Steel & Cast Steel Valves – Lead times remain a challenge for these categories.