SMU Data and Models

SMU Steel Buyers Sentiment Index: Tempering Optimism?

October 5, 2017

Buyers and sellers of flat rolled steel continue to be optimistic about their company’s ability to be successful in the current market environment as well as three to six months into the future. We are seeing signs of what has become a normal mild tapering of enthusiasm as we enter the fourth quarter of the year. This can clearly been seen when comparing the three-month moving average (3MMA) for both this year and last (see below graphic). However, the highs were higher this year and the lows that we are seeing at this moment are well above year ago levels.

When looking at the information from a single data point perspective SMU does have some concern. We measured Current Sentiment at +55 which is -11 points below what was measured during the middle of September. One year ago, Current Sentiment as a single data point was +43 which was the lowest point in the cycle and bounced back to +70 by the middle of December. We will have to wait and see if this will be the bottoming point for 2017.

SMU’s preference is to look at the data based on a three-month moving average (3MMA), which smooths out the index and provides a better look at the true trend.The Current Sentiment 3MMA is at +64.17, down from +65.83 two weeks ago.

Future Steel Buyers Sentiment Index

SMU also asked respondents how they feel about their ability to be successful three to six months in the future. Future Sentiment indexed as a single data point registered +60, down 8 points from mid-September, and its lowest reading since October 2016.

As a three-month moving average, Future Sentiment registered +66.67, a slight dip from the last two reports. Buyers and sellers are feeling somewhat more optimistic than they were at this time last year when the index was at +59.83. The peak in the Future Sentiment 3MMA in the past year occurred in mid-March at +73.67.

According to SMU’s analysis, the moving averages for both current and future sentiment have been gradually trending toward less optimistic levels for most of this year. After a brief pause in mid-September, the latest numbers show further erosion.

What Respondents are Saying

Some respondents’ comments reflect concerns about demand and pricing, which would explain the pessimism in the latest data:

· “There’s a definite slowdown in orders from our customers. The fourth quarter appears unfocused.” Manufacturer/OEM

· “It’s extremely competitive and margins are down.” Service Center/Wholesaler

· “The market seems flat to slightly down in pricing and demand. I don’t see or hear of any drastic swings in the near term.” Service Center/Wholesaler

· “The environment for future contractual business is brutally competitive and business is being booked at levels that are completely ridiculous.” Service Center/Wholesaler

· “I think we need to be creative and look for our regular opportunities with key supplier and key customers. Now is not the time to expand or take extra risk.” Trading Company

· “We’re expecting Q4 to be difficult due to the normal seasonality. We’re hopeful that we will see a pricing increase during Q1 18.” Service Center/Wholesaler

Some buyers remain hopeful about the coming few months:

· “We’re thinking that demand will pick over the next six months, especially with rebuilding of infrastructure. Could be lights out with any type of Section 232 rulings or corporate tax relief.” Service Center/Wholesaler

· Inquiries have been strong. We are also landing orders. Must be competitive on pricing.” Service Center/Wholesaler

· “We have good suppliers and customers, but there’s much uncertainty based on current and future trade cases. I think demand will be there, it’s just where to source from?” Trading Company

· “End users are going to have to get off the sidelines at some point in the near future.” Service Center/Wholesaler

About the SMU Steel Buyers Sentiment Index

SMU Steel Buyers Sentiment Index is a measurement of the current attitude of buyers and sellers of flat rolled steel products in North America regarding how they feel about their company’s opportunity for success in today’s market. It is a proprietary product developed by Steel Market Update for the North American steel industry.

Positive readings will run from +10 to +100 and the arrow will point to the righthand side of the meter located on the Home Page of our website indicating a positive or optimistic sentiment. Negative readings will run from -10 to -100 and the arrow will point to the lefthand side of the meter on our website indicating negative or pessimistic sentiment. A reading of “0” (+/- 10) indicates a neutral sentiment (or slightly optimistic or pessimistic), which is most likely an indicator of a shift occurring in the marketplace.

Readings are developed through Steel Market Update market surveys that are conducted twice per month. We display the index reading on a meter on the Home Page of our website for all to see. Currently, we send invitations to participate in our survey to almost 600 North American companies. Our normal response rate is approximately 110-150 companies. Of those responding to this week’s survey, 38 percent were manufacturers and 46 percent were service centers/distributors. The balance was made up of steel mills, trading companies and toll processors involved in the steel business. Click here to view an interactive graphic of the SMU Steel Buyers Sentiment Index or the SMU Future Steel Buyers Sentiment Index.