Metals Industry Quarterly Perspective
Summary of the current metal market pricing.
First Quarter of 2017 Update:
Imports of metal products of all types have a significant effect on the U.S. economy and a destabilizing effect when foreign producers use subsidies, currency manipulation, or other methods to gain short-term advantages in the U.S. market. A recurring theme seems to be a gradual increase in exports of one type or another, which drives down market prices. As imports into the U.S. increase, domestic producers react with trade cases, which reign in imports. Demand for domestic producers increases and market prices recover. As domestic market prices increase, imports increase again starting the next cycle.
Ad hoc trade cases against pipe, coil, or plate will provide a short-term benefit as imports are restricted, providing higher demand and higher domestic market prices. This effect was seen in 2016 when demand and prices for galvanized and cold-rolled steel increased after tariffs were imposed late in 2015 against China and other export-driven producers.
Trade policy based on trade cases and tariffs is time consuming and ineffective, like playing Whac-a-Mole with hundreds of producers, importers, and brokers. Restrictions on Chinese steel coils led to increased orders for mills in Vietnam, Egypt, Turkey, and the Middle East. Metals industry purchasers want both low prices and stability. In recent years, rapid market price changes for steel, stainless, aluminum, and copper make it difficult to buy, sell, or plan inventory levels. Recovery rates in asset-based lending can change rapidly as market prices rise and fall, adding uncertainty to lending. That’s why annual or semi-annual appraisals make sense.
A cohesive, long-term trade policy may bring stability to the metals markets and decreased uncertainty for asset-based lenders. That is probably too much to hope for in the short term, so lenders should seek to understand how market changes effect recovery rates. Confused or concerned? Call Hilco Valuation Services. We love metals.
Industrial Inventory Appraiser
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