SMU Data and Models

SMU Market Trends: Most Doubt Price Hike Will Stick

October 18, 2018

Will the flat rolled mills be successful in collecting the $40 per ton price increase they announced last week? No, they will not, predict eight out of 10 steel executives who responded to this week’s Steel Market Update Market Trends questionnaire. Only about 20 percent believe the price increase will stick. Following are some insightful comments:

• “Everybody that I talk to thinks this increase was an attempt to shore up pricing. I am just glad I don’t have to place any orders right now.”
• “The increases won’t stick, but prices won’t go down in the short term.”
• “When Ken Iverson was around, they would lower the price when the order book was soft. Today, Nucor announces a price increase to attempt to generate demand? While this may stabilize the market short-term, prices will once again decline in about two weeks.”
• “Demand is down.”
• “It should establish a bottom…”
• “It’s only a line in the sand. The mills are worried there will be a lot of pressure on price negotiation through the end of the year. They are attempting to make a stand!”
• “It will keep the market flat. Buyers on the fence will place orders to avoid the price increase.”
• “There’s no basis for an increase.”

What motivated the mills to announce the price hike? The majority (60 percent) of respondents believe it is an effort to stop the downward spiral that has seen steel prices weaken by $100 per ton since July. Another 10 percent see it as a ploy to entice contract buyers to place orders sooner rather than later. About 3 percent feel the steelmakers need higher prices to recover higher input costs. Yet another 3 percent consider it simple greed on the part of the mills. About 24 percent point to “all of the above” as the motivation.

“This is a typical mill move when the market is moving down,” commented one respondent. “It will stop the price slide and initiate the annual contract process on a stronger footing,” said another. “Mills are in the business to make money, so why not make more profits,” commented one executive. “Greed and stupidity,” asserted another. “The tariffs have given them a blank check to jack prices way up.”