Steel Products

SMU Price Momentum Indicator Continues Record Run

January 16, 2013

For the past seven weeks, Steel Market Update (SMU) Price Momentum Indicator has been stuck in “Neutral” waiting for something to push prices in one direction or another. When we made the adjustment the week of November 27, 2012 from Higher to Neutral our SMU range for hot rolled coil was $620-$660 per ton (average of $640 per ton) and HRC has traded sideways (+/- $20/ton) for most of the past seven weeks. Our 7 week run is the longest we have had for a reading of Neutral since we started our SMU Price Momentum Indicator in 2009.

During the past two weeks, SMU began receiving data indicating the domestic mills were willing to break through the $600 per ton ($30.00/cwt) psychological barrier. A public break-through of the $600 level for medium sized service could take the numbers down to the mid-to-lower $500’s for larger service centers and would definitely move our SMU Price Momentum Indicator to Lower from Neutral.

The pressure on the domestic mills grew this week when a Goldman Sachs analyst was reported to have told his clients that $575 per ton hot rolled coil was available to large buyers.

However, our market data from this week indicates the domestic mills continue to battle to hold the line at $600 per ton and we cannot confirm the analyst’s reports of spot at the levels being reported outside of the normal steel channels. Our sources believe there is a bit more negative “tilt” to the market but SMU will not move our Price Momentum Indicator until we have a clear indication that prices will be moving in only one direction from here.

SMU reported flat rolled inventories at the highest levels based on our early January survey results. Raw steel production for the first two weeks of the year have been at much lower levels than what was produces during the same time period one year ago. Lead times, according to our survey results, are running about one week shorter than one year ago at this time (and prices began sliding at the end of January 2012).

Scrap prices have not been helping determine a direction as for the past two months prices have traded sideways and the early word we are hearing from scrap sources is prices will move sideways for February. A sideways wish this far out could easily turn into a move lower.

Iron ore prices have been trading higher in Asia (compared to November levels) which is helping keep a lid on a wholesale drop of domestic prices. Foreign prices have moved sideways to slightly higher – not enough to influence domestic prices.

Over the short term, Steel Market Update sees prices continuing to “drift” as they have been over the past 7 weeks. The domestic mills appear focused on trying to hold the line at $600 per ton but the reality of the market is there are few buyers out there able to make large purchases (or holding tons in their back pocket).

SMU Price Momentum Indicator will continue to be at Neutral as we wait for clearer signs from the market which will allow for the domestic mills to either push prices higher or for buyers to be in a position to negotiate large buys at lower levels.