SMU Data and Models

SMU Price Momentum Indicator Revised to Lower

February 11, 2014

On Monday, Steel Market Update revised our SMU Price Momentum Indicator from Neutral to Lower. The adjustment means we anticipate flat rolled steel prices will move lower over the next 30 to 60 days. At the time of the change, SMU benchmark hot rolled coil was published at $660 per ton.

The last adjustment to our Momentum Indicator was made on January 14, 2014 when we moved to Neutral after two and half months of being at Higher (October 31, 2013). On January 14th our benchmark hot rolled price average was $670 per ton. Our Hot rolled average peaked at $675 per ton one week later before beginning to pull back over the next two weeks to the $660 level reported this past week.

Over the past few weeks prices were impacted by supply coming back online from U.S. Steel, ArcelorMittal and, to a lesser degree, AK Steel which has had a limited spot order book over the past few months. There is availability out of the mini-mills and we saw the EAF mills leading the way with some lower prices shortly after the beginning of the year.

Our HR prices peaked at $675 on January 21st while Platts brought their HR average up to $685 per ton the last week of December and held that number until January 14th. The CRU HR index peaked at $678 during the week of January 7th.

Steel Market Update discussed the import situation with an executive of a warehousing facility, with locations at a number of southern ports, during the Port of Tampa Steel Conference. We learned from this executive that there have been a number of speculative tons being placed in public warehouses in Houston. This, as well as other information we have been collecting directly from buyers and then added to the license data being reported to the U.S. Department of Commerce, suggests we will see more foreign product on the docks in the coming months.

We have also been seeing reductions in spot iron ore and other commodities. Spot iron ore has retreated to $120 per dry metric ton. This is down $9.50/dmt over the past four weeks and well below the 52 week high of $158.90/dmt. Tight credit conditions in China are keeping the mills away from the spot ore markets.

The dramatic reduction in the value of the currency in a number of the BRIC countries also points to those countries potentially exporting more material to the United States in the coming months or for as long as the imbalance remains.

The issue, which is not totally in focus, is demand and will we see demand growth which can absorb not only the excess supply available at the domestic mills but also the influx of foreign steel and potentially higher service center inventories. Demand and inventory levels will be something we will watch carefully in the coming weeks.