Steel Products Prices North America

Steel Buyers Getting Nervous

April 29, 2014

Steel Market Update continuously is in conversation with flat rolled steel buyers from around the country. We have noticed a growing nervousness within the steel community as the buyers grapple with ever higher steel prices and extended lead times. In some cases the lead times on foreign material are not much more than what the domestic mills are quoting and, as one large service center put it to us earlier today, “We are starting to take a serious look at foreign, which is not what we [normally] do.”

The General Manager for a second very large service center told us today, “I think the HR Futures market is quite informative at the moment, and I believe that prices could very well follow the trend in the forward curve. While I recognize the unusual issues specific to the US market are real, there is such a disparity between the US and everywhere else, that I fear of a collapse in the summer, assuming anything close to normal production occurs. This market sure fits into Correnti’s comments that the market can easily absorb/use the added volume. Unless and until we see another full year where we don’t see the kind of immense production problems that we’ve seen the last 2 years from our current mill suppliers, they don’t have a leg to stand on saying there are too many imports or to many domestic mills…

“Domestic manufacturers here are paying some notable premiums for sheet steel, due almost entirely to domestic mill problems.”

Part of the nervousness is that we are starting to see some of these “mill problems” in the process of being resolved. US Steel Gary Works should be receiving more iron ore and at an improved pace as the ice on the Great Lakes shipping channel abates. We are also hearing that USS Great Lakes should also be coming back online very soon. Now both of these plants will have some catching up to do but, it is only a matter of time before they do to a point where steel production is freed up elsewhere.

Another distributor told us when asked if they could afford to pay $35.00/cwt for base gauge hot rolled, “So, lead times are way out. The scenario plays out like this: Inquiry for 500 tons need right away… Those mills who have short lead times (let’s say SDI for now) should be able to get their $35 if customer really needs it. [Our] fight will be against those of my competitors who have cheap inventory or who have room and time to move orders around at their mills (even those with contract pricing are a little stuck because of lead times. So, unless they can move stuff around then they will have to pay the spot price at a non-contract mill). Suspect commodity items will still lag the market due to stock on floors, imports, etc. But in theory niche items, high strength, etc. should be able to get the price. Just that people don’t always negotiate in reality…they just assume that if they can get 1/4 X 60″ A36 for a lower price, then everything should be based on that number.”

One steel mill told us that they were having some issues due to the proximity of their plant to ports where foreign steel was arriving pressuring their prices. Their mill has not yet been able to achieve the same base prices as the mills located in the Upper Midwest. “In port cities like Houston it is impossible to sell anything other than little fill ins…”

It appears April could be the biggest month for imports into the U.S. The last time we received as much as 3.288 million net tons was July 2007. We are forecasting imports could be as high as 3.5 million tons based on the import licensing data we have through today (see article below).

A Midwest based service center who normally is not concerned about losing customers to foreign steel told us today, “We are starting to hear from some customers that they are getting quotes on foreign where the numbers are close to making sense [delivered to the Midwest]. We are nowhere near water and it is frightening if the numbers start to make sense. Imports are going to ruin this party.”

The domestic steel mills seem to realize that they are walking a fine line. We spoke with one mill over the weekend who advised SMU that they had moved their spot prices higher but only to their sales force. They had made a decision as a company not to go out with a price announcement.

Steel Dynamics did open their June order book with hot rolled at $700 per ton ($35.00/cwt) and coated at $820 per ton ($41.00/cwt) plus mill extras. We will be interested to see how quickly they are able to fill their order book.

All ears will be on the US Steel conference call tomorrow to see where they are in the march to repair Great Lakes and replenish Gary Works.