US Steel Announces Flat Rolled Steel Price Increase

Reaction to the USS announcement was a surprise to some and expected by others. Many buyers believed the steel mills would wait until the OCTG final determination to be announced (Friday, July 11th) before making a price move. Others pointed to the supply disruptions, tight service center inventories and late deliveries out of the Midwest mills as well as improvements in demand as reasons for supporting the US Steel increase.

From the Upper Midwest we heard the following from the head of purchasing for a service center, “Mills are behind, scrap going up, demand good, inventory levels low… No one has followed but I can tell you that mills are unwilling to negotiate lower pricing.  In fact NLMK has effectively raised prices as they stopped giving all discounts.  Also, the import ruling on 7/11 may bode well.”  

SMU did reach one mill on Monday evening who told us that they would “probably not” follow the US Steel lead on pricing at this time. Other mills did not respond to our request for comments. For any price increase to succeed it generally needs the support of the rest of the domestic steel mills.

Geography does seem to affect a company’s view as the general manager of a service center in central portion of the U.S. told us,  “I believe it’s an attempt to a) try to stall the downward price movement b) get complacent buyers to perhaps place orders earlier than they otherwise might. This may also be an attempt to try and get July bookings put to bed. We’ll see if they allow orders to come in this week without the increase (delay implementation). I do know that USS has shorter lead-times (4 weeks at Granite City, 3 weeks at Fairfield), so this might make sense. USS (and the others) want to get July behind them so that they can focus on Aug and beyond, which is normally a busier time period. However, I’m afraid that with the incoming imports and the returning domestic production, that in Aug and beyond we’ll see over-supply, and thus a difficult mill price environment.”

Timna Tanners, metals and mining analyst and one of our featured speakers at this year’s Steel Summit Conference in Atlanta, told us, “It seems to me to fly in the face of reality. In Europe we are seeing downward pressure on prices, plus iron ore prices have been under pressure. This increase seems to be a bit tenuous at this time.”

The increase is very modest based on the history of increase announcement over the past couple of years. The US Steel announcement follows a similar attempt by ArcelorMittal in early June. At that time AM announced firm base prices on flat rolled of $680 on hot rolled ($34.00/cwt) and $810 on cold rolled and coated ($40.50/cwt) fob the mill.

As of Monday of this week our SMU hot rolled price average was $660 per ton and both CRU ($666) and Platts ($670) were below the $680 HRC minimum suggested by ArcelorMittal in their June 5th announcement.

“This increase reminds me of the last one out of Mittal,” is what the president of a Midwest based service center told SMU in a phone conversation. “If they were trying to get anything they would ask for $30 or more. It’s a slow leak. I don’t think prices can go higher but instead will slowly go down. I don’t think it can get seriously better until there is something on the dumping front [reference to potential cold rolled and coated dumping suits which have not yet been filed].”

However, that same Midwest service center told SMU that demand has been decent out of their customers. Some within the steel industry point to the strength in demand as the tipping point which could firm prices.

In response to the US Steel announcement, Steel Market Update has adjusted our SMU Price Momentum Indicator to Neutral from Lower. We will maintain the Neutral rating for a few days to see if other steel mills move prices in support of the USS announcement and if the customers do indeed end up paying more for their steel in the coming days. With the OCTG case to be resolved by the end of next week we may not see a mass movement to raise prices until that verdict has been issued to the industry. The date is July 10, 2014 when the US Department of Commerce will make its final determination.