Flat Rolled Price Increases Coming?

Steel prices moved $160 per ton before stabilizing and then slipping by $20-$30 per ton which is in line with the reduction in ferrous scrap pricing for February.

However, those initial scrap negotiations changed after a few days and have been firming ever since. One of our scrap sources told us today, “We generally expect the ferrous market in March to move higher.  That is a typical seasonal trend, which this year is enhanced by low dealer inventories, continued improving demand in the domestic steel market and now the export market too.  Add in the fact that the Nucor DRI plant will be down.  There are a lot of tailwinds for scrap right now.  I think conservatively we will revisit and potentially exceed the price level we experienced in January.”

Hum, scrap prices appear to be firming to maybe exceeding price levels last seen in January.

Earlier today I participated in a HARDI conference call with many of the HARDI wholesalers as well as a couple service centers associated with the group and some manufacturing companies. Everyone on the call today are involved with galvanized steel sheet and coil in the United States and Canadian markets.

The tone of the call was very upbeat regarding demand. Business appears to be good and expected to get better. One wholesaler from the Rocky Mountain region of the U.S. reported their mechanical contractors had full order books for 2017 and they were just waiting for the jobs to break loose.

On Monday I met with the owner of a manufacturing company who reported their January sales were 17 percent above 2016 daily shipment rates. This company also expects business to be quite good this year.

Trading companies continue to advise SMU that 2017 import levels, beginning in the 2nd Quarter, will be reduced year-over-year.

When speaking of the HVAC industry and the foreign steel needed to service the industry, one trader told us, “I am 110% confident that import will be less in 2017 since there are fewer mills for sure that are qualified for HVAC.”

Spot iron ore prices busted through $90 per dry metric ton (62% Fe fines, China). To put that into perspective, I think back to the comments made by Lourenco Goncalves, CEO of Cliffs Natural Resources, during the SMU Steel Summit Conference. He forecast iron ore would average $60/dmt. We are now at $90+/dmt.

Foreign prices are moving up and the spread between foreign and domestic is shrinking, and, in some cases, the lower end of our range is less than new foreign being offered for May/June delivery.

Zinc prices reach $1.36 per pound of the LME yesterday ($1.33 today) which is well above the levels seen when the coating extras were adjusted last year. The galvanized steel mills may be the first to move prices and it is not in their interest to lower prices right now.

One of the domestic steel mills shared their thoughts with me earlier today, “By the way…I think things have tightened a bit over the last 10 days or so, but the average customer has not figured it out. With mills having found a hot rolled floor, with scrap having firmed substantially, and Q2 imports likely to be lower than Q1, it means mills will be a tad more patient. Yet the average customer is still talking about new capacity, imports, scrap as being weak… Maybe 2nd Quarter will be tighter than customers think.”

Something to think about…