SMU Data and Models
Service Center Spot Prices Still Don't Reflect Confidence in Price Increases
Written by John Packard
February 10, 2019
Flat rolled steel distributors have been slowly backing away from offering spot prices to their end customers at lower numbers than what was seen a couple of weeks ago. At the same time, these same service centers are reporting difficulties getting those same end user customers to pay higher prices, despite the price increase announcements led by the West Coast mills and then Nucor in the East over the past few weeks. This is part of what we learned from the flat rolled and plate steel market trends analysis done last week (week ending Feb. 8, 2019).
Fewer manufacturing companies reported their service center suppliers as lowering spot prices. During the middle of January, 86 percent of the manufacturing companies responding to our invitation reported distributor spot prices as being lower than what they were seeing at the beginning of January. Now, two weeks later, only 59 percent reported spot prices as still in decline.
We need to be careful here not to infer that the flat rolled price increases announced by the mills located east of the Rocky Mountains are thus “sticking.” As you look at the data contained in the below graphic, note the last time manufacturing companies saw a sharp reversal of spot pricing fortunes was in early fourth-quarter 2018. Or, to put it a little more bluntly, the last time Nucor announced a price increase there was a blip in quoting for a couple of weeks before going right back to distributors dumping spot prices (and inventories) into their customers.
Service centers, who had not yet reached capitulation using the SMU formula which requires 75 percent or more of steel service centers responding to our survey reporting their company as dropping their spot pricing to their customers, are providing some stability to the market. Our most recent analysis has 28 percent of the steel distributors lowering spot prices this past week, down from 59 percent during the middle of January.
What is missing for that support is those service centers who believe higher prices will be supported by the market, and thus are raising spot prices. Only 5 percent of the steel distributors reported reaching out and raising prices to their customers. There will need to be a huge move in this percentage if the price increase is going to actively “stick” and be collected across the market.
In the graphic shown above, this question was asked of the service centers only and the red ovals above the bars represents AK Steel price increase announcements. As of today, Feb. 10, 2019, AK Steel has not followed the other domestic steel mills with an official price increase announcement of their own (based on the lack of an announcement on the AK Steel website: www.aksteel.com).
John Packard
Read more from John PackardLatest in SMU Data and Models
SMU Survey: Steel Buyers’ Sentiment Indices contrast at year end
Both of our Sentiment Indices remain in positive territory and indicate that steel buyers are optimistic about the success of their businesses.
SMU Survey: Mill lead times contract slightly, remain short
Steel mill production times have seen very little change since September, according to buyers participating in our latest market survey.
SMU Survey: Buyers report mills are slightly less flexible on pricing
Steel buyers of sheet and plate products say mills are still willing to bend on spot pricing this week, though not quite as much as they were two weeks prior, according to our most recent survey data.
December energy market update
Trends in energy prices and active rig counts are leading demand indicators for oil country tubular goods (OCTG), line pipe and other steel products
Apparent steel supply remained near two-year low in October
Referred to as ‘apparent steel supply’, we calculate this volume by combining domestic steel mill shipments with finished US steel imports and deducting total US steel exports.