Let’s Discuss Steel Prices

SMU has received questions and comments from steel buyers, steel mills and the financial community regarding both the lower and upper ends of our hot rolled pricing this week.

First, let me explain the way we track pricing as it is much different than the CRU Group (our parent company). We communicate directly with buyers and sellers of steel. We intentionally heavily weight the number of steel buyers as opposed to gathering information directly from steel mills. When we communicate with our data providers, we are looking at recent transactions as well as the “bids and asks” from their steel mill suppliers. In other words, what the steel mills are offering for spot pricing and how the steel buyers are responding. Based on as large a sample pool as possible, we then review and throw out outliers (single prices that are outside of the core responses we receive) or we ask more direct purchasing questions about the number provided (offer or purchase, number of tons, when, who, etc.). Next, we determine the range – lowest base price at one end and highest at the opposite end. Then we take the high and low, add them together and divide by two to determine our weekly average. Our HRC average this week was $685 per ton.

We mentioned that the lower numbers in our range were coming from two mills. We recognize that one of the mills is still breaking into the prime production market and has limited tonnage and gauge/width ranges. It is an ongoing struggle to determine how much weight their pricing should receive compared to larger, established steel mills. Right now, SMU is giving them a full vote and treating them as a legitimate steel producer.

Since we have been getting some push-back or questions from buyers, sellers and the financial community, SMU spent the last couple of days reviewing the data, confirming pricing directly with a few steel mills and taking a harder look at Sentiment based on the comments we received and bundled as we prepared our price range for the week.

The data collected suggests that our range is correct. If, however, we were to reduce the impact of the one mill trying to break into the market, our range would have been $680-$720 per ton, and our average would have been $15 per ton higher at $700 per ton. This represents a modest decline of $5 per ton compared to the prior week. However, our research today found other players below $680 per ton, and those reporting the numbers were the steel mills themselves.

We did interviews with the commercial departments at five domestic steel mills this afternoon and evening. One told SMU late this afternoon that they had taken spot HRC as low as $630 “in order to compete with CRU minus deals.” That same mill told SMU of losing an order below $630 to an integrated steel mill. Four mills reported the range as being $680 to $720 per ton, with some under $680 to meet competitive pressures. Surprisingly, a couple of integrated mills were mentioned as being active in the spot markets at prices that were not typical for those mills.

One mill sent SMU an email suggesting the upper end of our range was too low. The only response we have for them is that we did not have any steel buyers referencing HRC numbers above $720. Our checks with the other mills confirmed that the upper end of our range was representative of the spot numbers out there earlier this week. For that matter, one very large mill selling significant tons into the spot HRC markets told us that the number of $720 orders was not large and most numbers were closer to the $700 level.

This afternoon, SMU received a note from one of our data providers in the South who is buying from SDI Columbus and some of the Nucor facilities. This is what we were told: “SDI Columbus HR just went to 2 months; Nucor’s quoting me 6-week lead time on HR. Just so confused about what is going on right now. JSW can’t be shaping this market all by themselves, plus their freight to every user west and south of them is very high….” SMU response to this buyer – JSW is not the only sub-$680 mill out there.

In the same area of the country I received a note from another data provider (a service center) reporting spot numbers today as being $680-$690 per ton. “Not getting any pricing higher than that.”

A service center owner in the Midwest told us this afternoon, “Hot rolled seems to be the weak link.” He went on to tell us that a small HRC quote received this week was at $720 per ton. Their company buys very little hot rolled. On galvanized, they reported extended lead times out of SDI and Nucor. What is of concern to SMU was the final report given to us this afternoon. Shipments, which were up in January and February, were down in March. “Kind of a boring market. Seems like everyone is on spring break,” said the service center exec.

Here are some of the other comments we received from steel buyers earlier this week when we collected our initial numbers:

“Coating continues to extend a little further than CR or HR, but all are improved over the last few weeks. Negotiations on coated are relatively firm, but a little more flexible on CR and HR depending on the mill and their needs. Demand is still good as compared to 2018, but not at substantially higher numbers. Will it rise with better weather for the construction industry? That will be significant.” Service center

“Market is better than all the chatter.” Manufacturing company

“I don’t see things very much different than the beginning of the month. Distributors seem to be using any lift in prices as an opportunity to more aggressively move inventory that may have at a lower cost. Some longer-lead-time pockets have come back in. As far as I can tell, $700 is still a strong resistance point. With lower import arrivals and lower new import bookings, prices should be marching higher. Instead of signaling strength in the market, strong domestic production is being seen as too much supply.” Service center

“Lead-times appear to be shortening for HRC, but not Galv. Mills are willing to negotiate for tonnage and the right product-mix.” Service center

“No real change in lead times excepting coated, which is very strong in most places right now. Mills are firm on coated, but negotiable on HR and CR almost everywhere. We still have concern regarding demand. We see steady at best with many customers cutting back on releases/volumes.” Service center

“Has there been any change in lead times from our suppliers? Not really up or back, so no. I’d say mills are 35 percent firm, meaning they are attempting to get better prices, but signaling too that volume remains as important, if not more so.” Service center

What’s Next?

One of the mill commercial managers told us they are waiting for the HRC market to stiffen up a bit (and lead times have done so over the past two weeks at this mill). They expect there will be another price increase announcement on flat rolled in the not-to-distant future.

SMU does not change our Price Momentum Indicator based on comments from the commercial departments at the domestic steel mills. We prefer to listen to those buying steel directly from the mills. As the comments above indicate, there is not true direction quite yet. There is nothing that is making us move our Price Momentum Indicator on flat rolled away from our Higher indication. HRC is feeling some temporary weakening and we will continue to watch HRC closely in the days and weeks ahead.