SMU Data and Models
SMU Price Momentum Indicator Adjusted to Higher from Neutral
Written by John Packard
December 13, 2015
On Friday Steel Market Update (SMU) adjusted our Price Momentum Indicator from Neutral to Higher. With almost all of the major mills now walking in step with one another (at least regarding the direction of prices from here if not the exact rate of change from where they were a couple of weeks ago), we believe prices on cold rolled and coated will move higher over the next 30 days. We also believe hot rolled prices should get a bump as well – whether or not HRC is able to get sustainable momentum will depend on the determination of the mills, how much capacity is being taken out of the marketplace and, how much foreign HRC is being offered into the U.S. market (and at what price level).
Will this change in Momentum be nothing more than a Dead Cat Bounce similar to what we saw earlier this year when prices rose from $445 per ton at the end of April to $470 per ton in early July only to collapse from that point until this past week when we reported HRC at $360 per ton (down $110 from early July)?
There are two haunting questions that will determine whether or not this round of price increases (and any new rounds to come) will stick over the long term:
• Will demand improve once we get into the 1st Quarter?
• Will inventories shrink from here and will there be a break in the onslaught of foreign steel coming into the U.S.?
On the demand front, The Institute for Trend Research (ITR) is forecasting the slowing in demand to last until May 2016.
So, from our perspective all eyes should be on inventories, the antidumping/countervailing duty trade cases and the total number of tons being removed from the marketplace with the idling of Fairfield, Granite City and Ashland (at least on the hot end – the steelmaking end). We noticed a report out of Granite City that quoted one of the workers as saying they have enough slabs to keep them busy well into January…
For now we are of the opinion that there is enough acceptance by buyers (service centers in particular, end users are usually never fond of rising spot prices) to allow the mills to collect some, if not all, of the $40 per ton announced this past week.
John Packard
Read more from John PackardLatest in SMU Data and Models
SMU Survey: Steel Buyers’ Sentiment Indices contrast at year end
Both of our Sentiment Indices remain in positive territory and indicate that steel buyers are optimistic about the success of their businesses.
SMU Survey: Mill lead times contract slightly, remain short
Steel mill production times have seen very little change since September, according to buyers participating in our latest market survey.
SMU Survey: Buyers report mills are slightly less flexible on pricing
Steel buyers of sheet and plate products say mills are still willing to bend on spot pricing this week, though not quite as much as they were two weeks prior, according to our most recent survey data.
December energy market update
Trends in energy prices and active rig counts are leading demand indicators for oil country tubular goods (OCTG), line pipe and other steel products
Apparent steel supply remained near two-year low in October
Referred to as ‘apparent steel supply’, we calculate this volume by combining domestic steel mill shipments with finished US steel imports and deducting total US steel exports.