US Steel Coaxes Salesforce to Increase Flat Rolled Steel Pricing

“It has been more than 1 month since we announced a price increase of $20 per ton across all North American Flat-Rolled spot transactions. After some success in collection of this increase, market forces beyond what we control, unfortunately, have recently pulled prices in the opposite direction, to unhealthy and unsustainable levels.”

The memo, which was transmitted to U.S. Steel customers, went on to not announce a price increase but rather to point out to the U.S. Steel sales people that they were to adhere to the minimums associated with the $20 per ton increase announced in late October.

“This correspondence today is written not to announce a new price increase, but to instead advise all of you that collection of the $20 per ton increase and/or the associated minimum price guidelines that each of you received separately on October 29th, will be strictly adhered to as we begin meaningful price discussions with our spot customers regarding January business opportunities.” (article continues below)

The letter then referenced commitments that were made (we are assuming by the USS sales departments) for 2015. It is SMU’s opinion that this statement may be referencing commitments that may be part of the new Carnegie Way changes associated with US Steel’s CEO, Mario Longhi.

“We have all made commitments for 2015, and we will put ourselves in a position that in January we will meet or exceed those obligations. If you have any questions regarding this information, please let me know.”

A number of steel customers, both those of U.S. Steel and otherwise, have contacted Steel Market Update on Monday and again today about this letter trying to make sense of it.

One large service center buyer asked if the letter was really intended to be shared with the industry or if it was to have been kept within the sales department. We were told, “This was a foolish attempt, and quite frankly makes USS look desperate and very insular in their outlook. I’m surprised that it came out, but was it intended to be publically circulated?”

Another service center buyer told us, “USS letter was very odd. Basically saying that the last increase they didn’t really mean but this one they do!”

It is Steel Market Update’s opinion that the U.S. Steel letter had a number of purposes behind it:

We interpret the letter as saying that the USS salespeople are to adhere to the original price increase announced on October 29, 2014, even though spot prices have eroded since then.

We also believe the letter is a way of signaling the rest of the steel industry that perhaps the discounting is perhaps a bit over-done with lead times now in 1st Quarter 2015 and with decent business conditions.

Back in early November the domestic mills were attempting to get hot rolled base prices up to $33.00/cwt ($660 per ton) and cold rolled and coated to $39.00/cwt ($780 per ton) plus extras. Steel Market Update has our hot rolled average at $615 per ton ($30.75/cwt) this week. This is down $5 per ton from one week ago and is at the lowest level during this calendar year. SMU believes that USS is trying to prevent our index and the other indexes from dipping below $600 per ton.

They are fighting an uphill battle at the moment with high(er) inventories at service centers, a slight slip in demand expected for 1st Half 2015, short lead times at the domestic mills and a large amount of foreign steel at the ports as well as new offers at prices well below the index averages.  It may be too much to ask the industry to reverse direction at this time. We will see how the other mills respond in the coming days.