Steel Products Prices North America

Steel Buyers React to Mill Price Increases

April 28, 2015

Late last week one of the smaller mills (North Star Bluescope) not known to cold rolled and galvanized buyers since they only produce hot rolled coils, began moving spot prices higher. One of NS customers advised us toward the end of the week that the mill was looking for $465 per ton ($23.25/cwt) for new spot orders. This was a harbinger of what was to come as lead time improvements have been seen at most of the steel mills over the past few weeks.

Then late last night and during the day today (Tuesday) the flow of price announcements, both verbal and in writing, began.

As the announcements became known to all of the steel buyers, SMU began collecting their reactions.

Service centers are clearly supportive of the attempt to reverse the direction of prices as this potentially ends the erosion of steel prices.

A large service center told us this afternoon, “This move by the mills is unusual in that it is “welcomed” by the distribution market. It helps to better define a true “bottom”, and gives sellers more backbone to hold the lines. In the short term I expect increased order activity at the mills, and some lengthening of lead-times. Once the post-price increase announcement wave has subsided, I think the best that we can hope for is for prices to be $20-40/ton higher ($460-480/ton), a solid 4+ week lead-time for HR, and controlled production at the domestic mills. However, foreign prices will likely remain a suppressing factor as to how high prices are able to move off of the bottom, since buyers can switch more easily than in the past.”

However, as one large service center put it to SMU on a call earlier this morning, “The increases only work if the mill salespeople have the resolve to push the increases through.” He went on to relate how one of the mills was working on their increase announcement a week ago but did not put it into motion because they were not sure their people would support the new numbers once they got into a competitive situation.

Not all of the mills have announced the same pricing. ArcelorMittal increase announcement called for a flat $20 per ton over their May numbers (whatever those might have been as they will vary from company to company). NLMK USA, on the other hand, put out specific base prices in their letter to their customers. The NLMK “minimum” base numbers were $24.00/cwt on hot rolled and $30.00/cwt on cold rolled and coated.

This morning Nucor representatives were telling their customers that the new minimum base price would be $23.00/cwt on hot rolled and $29.00/cwt on cold rolled and coated products. However, late this afternoon the company put out a price announcement letter which called for $20 per ton price adjustments (minimum) effective immediately. The $20 per ton announcement is in line with ArcelorMittal and may be more realistic than announcing specific base price levels at this time.

We spoke with a couple of mills over the course of the day and the consensus we heard was that lead times were indeed beginning to move (prior to the announcements being made). The mills we spoke with felt a $20 per ton price increase could be collected, although one mill pointed out that our coated base prices at the low end of the range were at or below $27.00/cwt and plus $20 did not add up to either $29.00/cwt or $30.00/cwt.

When steel buyers were asked about the higher NLMK numbers and their ability to collect those numbers one service center executive told SMU:

Step 1: Make Snowball.
Step 2: Place snowball in hell.
Step 3: Compare survival time of snowball to orders booked at $30.00 base.

Another Midwest based service center explained that the mills were putting different numbers out there to see which ones will stick, “They are trying to stop the elevator ride down while stopping at different floors to see where they can get off!”

Exactly where prices will go from here is directly in the laps of the domestic steel mills. Will all of the mills announce (as of late this afternoon we still had not heard from AK Steel or US Steel as they both announce earnings this week)?

A large end user had a different take on the announcements than most of the service centers, “Nobody has called me or emailed with restrictions of current offers. I think these announcements are a little premature based on imports and inventory. I guess we will see but I don’t expect to pay anything higher right now.” They went on to tell us that their hot rolled offers were are running at, or below, $22.00/cwt ($440 per ton).

A large service center added, “Nucor pulled all open offers off of the table today, including offers that were quoted just yesterday, and refused to honor those offers. This is also the case at SDI, even though they technically haven’t announced yet. There likely is a decent amount of “ready” tons that will now flow into the mills with the increase announcements. Whether June fills quickly or not will depend heavily on how much production the mills bring back online. If the EAF mills stay disciplined and continue to operate their mills on less than 2 full casters, it will certainly help to control the supply to some extent. On the other hand, USS is “quietly” advising customers that Granite City will likely not shut down at the end of May, as previously announced.”

Steel Market Update will continue to keep our Price Momentum Indicator at Neutral until all mills have made they move and the steel buyers begin to either accept (place orders at the new prices) or reject the new prices.