Steel Prices: The Million Dollar Question

We continue to see a difference in pricing out of the mini mills versus the integrated mills. However, one should not assume that the integrated mills are not active in the spot markets – they are.

We spoke with a service center executive who has plants both in the north and southern U.S.A. He told us that there was quite a difference between mills. He referenced cold rolled as an example which he pegged at $36.50/cwt-$37.50/cwt base prices out of the mini mills and conversion mills and $38.00/cwt-$39.00/cwt base prices out of the integrated mills. We found other buyers citing similar situations. Steel Market Update pegged the range on cold rolled to be $720-$780 per ton this week – a $60 per ton spread from low to high.

Hot rolled continues to be the weakest product. We have heard of large deals at numbers below $600 per ton but the average customer can now expect to see base price offers on HRC from $600 to $640 per ton.

A service center told us, “Mills pretending to try to hold line at $31… after the aggressive sub $30 deals we discussed… But those deals are messing up the market pretty good. May backfire on mills and drive prices down unless some serious discipline is held.” This buyer went on to tell SMU that there were still some sub $31.00/cwt base prices out there but a number of the mills will no longer match the low end deals.

One of the service centers we spoke with today told us the toll processing business has slowed down recently. It was only a couple of weeks ago they were seeing three week lead times on processing and now those same processors are down to one week.

With scrap moving lower and the mini mill cost being projected as being $540 by one service center (a hedge fund sent me the same price forecast – $540 – based on their calculations) there is supposedly room for the numbers to fall further (from the mill perspective they would be quick to point out that today’s steel is not necessarily using March priced scrap but rather February’s or January’s).

“I don’t see any reason for stability here,” is how this same service center executive pegged the market. “We know a lot of foreign steel is coming. What I don’t know for sure is how much is being booked right now.” He told us that there may be a “pause” in foreign buying but the foreign mills don’t have a lot of options as to where they can sell their steel. It will only be a matter of time before the spreads between domestic and foreign expand once again.

We did hear good things from our service centers who are servicing the domestic auto companies and transplants. One supplier told us that Toyota is going “balls to the walls” and the auto companies as a group, “they shrug inventories off. We sell cars and we will continue to make them. All news out of the auto companies is positive – and we have our necks stuck out….”

When large buyers are able to take advantage of special offers the market tends to see service center spot prices as being “out of whack” as prices are pushed to what the smaller service centers perceive as non-competitive and market altering levels. When this happens the fingers are pointed at the steel mills for allowing it to happen. The smaller service centers then go to the mills and say “what about me? Is my business no longer valuable?” The end result is a spiraling out of control market. Are we in one now? Time will tell but, there are early signs of trouble ahead.

Steel Market Update continues to show our Price Momentum Indicator pointing to lower prices over the next 30 days.