SMU Promotes Discussion as Steel Executives Ponder Price Direction

An executive with a steel mill told SMU earlier this week: “If I were a customer…I would not buy any more than the absolute minimum at these prices unless my sales guys were setting the world on fire, or unless the lead times were 8 weeks plus [at their mill]. And neither of those is happening. People are paying increases but there is no fear of a shortage. I think I am with you: price resistance and having no clear signal to load up = restraint.”

This executive then went on to say, “And for the panicky people, pricing has not gone lower per se…it is simply not as much higher than what the mills wanted you to believe. Big River is starting to take some biz away from others and they are noticing. Q2 is index adjustment on many contracts – some will run to the hills….”

A service center send SMU a note regarding our announcement that our Price Momentum Indicator continues to point to higher prices. We were told:

I truly think SMU is the standard bearer for industry news and I almost always agree with your price momentum assessments.  This is the first time in recent history I can remember having a totally divergent opinion of prices over the next 30-60 days, consider it a respectful disagreement.  

I have not spoken with a mill (Nucor, Mittal, US, NSBS, Algoma…) who has taken any meaningful spot orders yet this month.  They all seem to be, from a lead time standpoint, living off the sales they made in December which are keeping them busy. Yes, Mittal, Nucor and Algoma are into the first week of March on HR but my impression is that they are not successfully back filling the December orders to keep the lead times extended for any period of time. Adding fuel to the fire it appears there are significant volumes of CR and Galv coming in the import side for January and February, at least.  Throw in the Big River startup who, from what I hear, have taken significant tons at well below market prices to get themselves going.
 
It seems the mills are showing a willingness to negotiate that they weren’t a couple weeks ago.  They don’t seem to be in panic mode by any means but are acknowledging that the standoff between mill and service center (“who blinks first”) is in full swing.  As the days start catching up to the lead time, barring any major unplanned outages, I cannot envision prices at the 620 level 30 days from now.

I’d welcome your comments if you disagree with any of this or are interested in discussing.
 
Thanks again for a wonderful tool we use weekly.

A second service center executive told us, “Generally speaking, there’s growing unease with HR with many felling like we’re tapped out. Feb Scrap prices moving lower will put some pressure on HR, I think. CR and Coated seem to be better off, but they could be stabilizing as well. So far the weather this winter has been mostly mild, and that has helped scrap flows, which has put more supply in play. We have additional capacity coming on line soon in BRS and USS GC, in addition to increased imports in Jan. All of these factors point to potential softness ahead.”

While a third service center reported to SMU, “This is one of the most confusing markets I’ve seen in my 28 years… Although published lead times at 1 mill here this week were showing late February for HR/CR, early March for Galv, we were just advised yesterday that there is no more HRPO or Galvanized available until April! And, the CR is closing in as well. So, yes, major changes in lead times. I’m referring to Nucor Decatur. Also, AMNS Calvert has no more availability on all products until April as well. SDI Columbus is still offering late Feb for HRPO and early March on CR. Our order books continue to remain pretty strong for 1st Q and we’re optimistic for 2nd Q. I think we’re all waiting to see what scrap does to determine whether additional/formal price increases are announced. In the meantime, we’re just trying to hang on to this roller-coaster ride!”

Over the past three days SMU has been in Huntsville, Alabama conducting our Steel 101: Introduction to Steel Making & Market Fundamentals workshop. During the workshop, SMU publisher John Packard told the group that our position is to report what is happening in the market and, when we see the potential for change in the pricing trend, our job then is to promote discussion on the topic. We do not want to be seen as an active force trying to push flat rolled steel prices in one direction or another.

Based on the responses we have been getting since our first article on the subject appeared in Sunday evening’s issue, it appears we are accomplishing our goal.

We encourage our readers to remain vigilant.