SMU Adjust HR Index AND Moves Price Momentum Indicator to Neutral

At the same time, with the announcements of a $30 per ton price increase being made on Friday morning by US Steel and then followed by Nucor and California Steel in the afternoon, we are moving our SMU Price Momentum Indicator from “Lower” to “Neutral.” SMU always moves our Price Momentum Indicator whenever two or more domestic steel mills move to change the direction of flat rolled steel prices. The domestic steel mills will now work with their customers to see if steel prices have bottomed and, with the increase being accepted by steel buyers, will move higher from here. Or, is this just an exercise in futility with prices taking nothing more than a pause before heading lower once again?

We got a note from the Vice President of one of the flat rolled mills who was traveling on Friday and not able to react with an announcement to their customers. When asked if they thought the announcements would be collected we were told, “It will stick.” 

The initial reaction by steel buyers to the increase announcements was mixed as some buyers felt demand is not yet strong enough to justify an increase. Many steel buyers were surprised by the timing of the announcements, feeling they would more likely come in November.

A steel executive with one of the largest service centers told SMU, “I think this has a better chance to stick than plate. The utilization rates are much better on the flat rolled side.”

A second service center to us, “I think this is going to work. Mark Millett said yesterday [Thursday during earnings conference call] that prices would go up it was just a matter of time. with Vietnam taking some tons out of the market I think we are now off to the races.”

One of the steel mills told us, “OEM [original equipment manufacturers] buyers who think they had it all figured out for a November bottom (and have been holding their poor Service Centers hostage) are about to miss it.” It meaning the bottom.

A smaller mill told us, “We are starting to take orders.” Earlier in the day the same mill told us they had begun calling their customers saying their costs were changing and they would be reviewing their pricing structure early next week. In other words, its time to place your orders today and, apparently, those calls coupled with the USS and Nucor announcements have lit the fire under some of the OEM buyers.

It is common for Steel Market Update to adjust our Price Momentum Indicator to Neutral at any time when more than one steel mill makes a price increase announcement. We want to be fair to the steel mills and allow them the opportunity to try to collect new pricing without us having any influence on the market.

We will continue to review the market each and every day and will adjust our Momentum Indicator as soon as there is solid evidence that a direction has been established.