Bits 'N Pieces

Steel Market Update received the following note earlier today from a service center involved in the cold rolled and coated flat rolled steel markets. We thought their comments were typical of many that we have heard over the past few days – steel buyers are holding off buying and steel mills are trying to resist dropping prices too much for fear of creating a downward spiral at a time when the mills believe flat rolled steel prices should not spiral out of control.

“The proverbial game of chicken is in full effect – buyers are holding out placing orders under the anticipation prices will fall, while mills are decreasing production in hopes of keeping lead-times extended. The problem is that we are getting close to the collision point. Service Centers and OEM’s are running lean on inventory and will eventually be forced to place orders. Mills do not want to drop production too far and risk losing market share to other competitors and/or imports.

“We are receiving the same treatment we read in most steel publications – firm offers over the last 8-10 weeks on CRC and HDG. Some have lowered their numbers over the last week, but only by $10-$15 per ton.

“Demand is tough to gauge right now, because no one wants to put anything on their floor unless they have an absolute immediate need.

“As a seasoned veteran, I have experienced between 8 and 10 crisis markets. Typically, in the upward pricing part of the cycle we watch the mill order books extend, but mill production also starts to rise. Mills try to capitalize on the highest volume at the highest price. Eventually, the market becomes saturated, lead-times shrink, and the only way the mill can incentivize buyers to place orders is by cutting deals/prices. This current cycle is unique from the standpoint that (1) mills maintained production discipline during the upward pricing trend (partially due to the idled capacity), and (2) the plateau (or leveling off) phase has been prolonged. When was the last time you remember prices rising to these degrees and then holding firm for what is now going on 3 months?

“More exciting times…I love this game!“

From a coated steel buyer, “Foreign steel from the decent mills is really tightening.”

From a tier one automotive manufacturing company, “I am going crazy with these prices right now. The spread between HR and CR is out of control. The spread of $223ton is beyond comprehension?? How can HR go down and CR increase this week?? I would love to know true transaction pricing and not Indices(CRU, AMM). I have a feeling they are hugely inflated and the mills are giving good deals. The market is not that hot.”  They went on to say about business conditions, “John, we have not seen our production slow down at all.   In fact, July which is usually our slowest month with supplier shutdowns was full steam onward and our plants… did not have any down time.”

From a large service center group, “I expect downward price movements to ensue now, until mills get August HR put to bed, and then they may take a pause to see where things stand. I’m having a hard time reading the market reactions to the HR final rulings, with wide opinions abounding. I think we have a slippery 4-6 week period ahead, but still not anticipating a wholesale collapse since inventory levels would seem to preclude that from happening. I guess I’m still overall positive for sheet through October, but it gets pretty murky after that, especially if we see imports rise in reaction to the huge spreads in prices we’re seeing.”

From a trading company, “I am shocked that Posco is being hit hard in supplying material to UPI.  I thought that in the final analysis they would have exempted those tons from any major penalty.  Have to wonder about the next directors meeting between the shareholders as USX was one of the major advocates of the trade cases.  There is no doubt that the energy markets have drastically reduced the HR market so I would expect that USX would supply more but I also think they will get some from Nucor, SDI and other domestics.  Don’t know where they can go for major tons from other foreign producers. If I was at UPI I would be pushing to get a toll conversion deal with CSI to roll some slabs.  CSI definitely has the capacity and this could be a benefit for both companies.  Remember slabs can still be dumped in the USA and freight is much more advantageous from LA to the Bay Area vs material from back East.   This would be the best result for UPI at this time (assuming the ITC holds these percentages). I am not sure this really tightens up the HR market in the USA.  All the mills in USA have excess HR capacity so that is the easiest to add additional turns on the mill.  Down Steam units for CR and GI not much excess capacity to add additional turns but for HR there is definitely excess capacity.  Also remember that Big River will bring on some additional capacity as well.”