Service Center Spot Pricing: Is Capitulation Close?

Service centers are in agreement with their manufacturing customers with 61 percent of the responding distributors reporting their company as dropping spot prices. At the beginning of September, only 35 percent of the steel distributors were reporting spot prices as dropping, while at the beginning of July 65 percent of the distributors reported spot prices as rising.

With Section 232 in place, SMU is not quite sure whether our view on capitulation will hold and that we will see mill price increases potentially in the very near future as we approach that critical point.

Benchmark hot rolled steel prices have come down almost $100 per ton since their peak. Lead times continue to be modest, and our survey is reporting steel mills as being willing to negotiate spot prices on all flat rolled products (not yet on plate).

What we have seen in the recent past is for the plate mills to lead the way since they continue to be on controlled order entry. Plate mills have not seen the same erosion in pricing as has been happening on the flat rolled front. The plate mills may be content to ride the wave they are on and leave good enough alone.

On the flat rolled side, as lead times start to move through December and into January, that is when we would expect the mills to make a move. Most likely the first move could come from an automotive mill that doesn’t carry much spot business (like an AK Steel).

The question the mills have to ask themselves is how wide a spread do they want between their prices and that of foreign? Second, are they able to make a suitable return with hot rolled above $750 per ton?