Steel buyers fear one thing more than rising prices, Morgan Stanley says

  • President Donald Trump’s tariff announcements have raised investor concerns of higher metals prices.
  • The tariffs are causing supply concerns and buyers are entering into longer-term contracts than usual.
  • Demand for steel is high, and Morgan Stanley analyst Piyush Sood believes they will remain at their current levels for the next several months.

Steel buyers have been worried about rising prices ever since President Donald Trump announced a 25% tariff on imports last month. But Morgan Stanley says there is one thing that’s become an even bigger concern: supply shortages.

“Customers appear more concerned with securing supply than with rising steel prices,” Morgan Stanley analyst Piyush Sood said in a note to clients sent out on Thursday.

“So much so, that customers who have historically operated on short-term supply contracts are now, for the first time ever, requesting index-linked, long-term supply contracts with service centres. This behaviour suggests that consumers fear a steel supply shortage could materialise in 2018.”

And that fear isn’t without merit. Service centres made significant cuts to their inventory in March, the note pointed out.

The Federal Reserve said in its latest Beige Book released Wednesday that many American business are already starting to feel the sting of President Donald Trump’s tariffs.

Steel prices spiked to around $US800 per ton when Trump made his first tariff announcement in early March, up about 6.7% from February. And Sood thinks they are likely to remain elevated.

“Demand is strong across end markets in the US, including energy, manufacturing, construction and, to a lesser extent, auto,” Sood said. Hot Rolled Coil prices recently hit $US800 per ton, and Sood believes that “prices may stay above $US800/t until the Fall.”

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