Service Centers

Supply & Demand in Sync – Contract Negotiations Push Prices

December 3, 2013

Over the past few months we have seen constraints in the supply of flat rolled steel as one of the main drivers behind the higher price trend. Supply disruptions continued at a number of mills due to maintenance at Severstal, ArcelorMittal, USS and others as well as the restart associated with USS Lake Erie Works. Added to the fray is the hot strip mill expansion project at Nucor Berkeley in South Carolina.

Two mills announced official price increases at the beginning of the month. AK Steel was first out on November 7th with specific base price targets – essentially coming to a $30 per ton increase above the last announcement. The next day Severstal countered with a $20 per ton increase. The base price targets on benchmark hot rolled coil was $700-$710 per ton ($35.00/cwt-$35.50/cwt). The announcements were not followed by all of the other mills but did help keep momentum on the mills side as prices did move higher during the month of November but not to the levels of the announced increases.

Our calculations also indicated that the service centers covering the flat rolled steel markets are still in a net inventory shortage situation with our SMU Apparent Deficit analysis based on the November MSCI inventory data at -361,000 tons.

On the demand side we are hearing from the wide variety of companies with whom we speak on a continuous basis along with market data collected from other sources that demand growth appears to be in the low single digits in most industries.

The combination of tighter supply, distribution to buy and growing demand (albeit slowly) has created an environment where prices were able to appreciate slightly as the month of November progressed.

Also helping to firm prices this past month were negotiation positions taken by the domestic steel mills. By holding the line and pushing contract prices higher they have impacted the spot markets as well. More about the contract negotiations in another article in this newsletter.