Steel Products Prices North America

Companies Buying Short, Concerned About Pricing

April 30, 2019

Buyers of flat rolled and plate steels with whom Steel Market Update spoke today are concerned about the direction of steel prices, believing prices will continue to fall from here. Many buyers were debating how low prices would go over the next few months. A number have become believers that hot rolled coil will breach $600 per ton ($30.00/cwt).

“Yes, they [steel mills] are willing to negotiate,” one service center executive told us this morning, “and with scrap prices poised to drop $20+/ton in May, this will accelerate. There’s a chance we’ll see a market falling by larger increments than was contemplated even just a few weeks ago. I personally believe we’re heading to the low $600’s with a 40 percent chance we breach below that before summer is over. The only way we don’t is if domestic mills reduce output.”

S price squeeze ince it is counterintuitive for service centers to sell off higher priced inventory at lower levels than the week before, this is what is happening. This puts pressure on inventory values and on the pricing that material can be sold going forward by the domestic steel mills. A service center in the Southwest expressed their frustration with the process with the following comments made late this afternoon: “I continue to run up against competitors moving inventory to increase inventory turns due to prices softening. I continue to have to lower prices to move my own inventory, and many competitors are continuing to use future replacement costs for basis for current pricing to move that material.”

That same frustration can be heard in the comments we got from a top executive at a Midwestern distributor: “Demand is steady. We are already in the middle of the auto malaise and the construction side is really picking up. If everyone would just take a breath, everyone would make better business decisions.”

Prices, however, have been falling as holes develop in various steel mill order books. As mills look to fill the holes, they tend to look to either their biggest volume customers or to non-traditional customers offering what are believed to be eye-catching prices to fill the hole quietly (hopefully) as to not panic the marketplace. The quiet side of the equation doesn’t appear to be in full force at the moment, probably due to the number of holes that are perceived to exist. Here is how an executive at a large national service center put it to SMU earlier today: “Prices are all over the place. It’s as if the discipline is lost. Different mills all seem to have some sort of hole or gap they’re trying to fill, causing pricing heartburn.”

SMU is of the opinion that inventories at flat rolled and plate service centers are a tad on the high side. Our last analysis as of the end of March had flat rolled inventories at 2.7 months of supply. The head of purchasing agreed with our assessment of inventories when he told us this afternoon, “Your 2.7 months of supply is correct. There is more inventory than we are comfortable with… People [end users and service centers] are buying short, they are buying the minimum of their need.” The result is a growing bearish sentiment amongst steel buyers, especially service centers who are the bulk of the spot market participants. “The risk is all on the downside.”

A question remains regarding demand. Construction is doing quite well right now. Winter has ended in the north and work that was backed up is in process. However, other areas are seeing some signs of a slowdown. There is the traditional summer shutdowns and retooling at the automotive plants, coupled with energy markets that are not hitting on all cylinders and some other seasonal slowdowns. Here are two comments we collected from service center executives during the day today:

“Yes, we’ve finally seen some pullback from larger OEMs, following a period where they were struggling to work down extended backlogs. What they are not sure of yet is, will future activity level out at consistent rates or is the recent pullback or catch-up period the beginning of a lower rate of sales? The overall mood remains optimistic but more cautious.” Service center general manager

“It’s a little odd right now. Our overall demand has been fine, but we have seen and heard that competitors were overbought and dumping inventory for the past 6-8 weeks, which has created a ton of margin pressure. I thought it was just about over, but I think buyers are worried about more price drops. Tubers have been slow as well…. Demand for Discrete has been slowing for the past several months and was caused, I think, by a softening in the O&G market. Our demand has stayed fairly consistent this year, but with what we are seeing in the market from the mills I’m concerned about what demand will look like going forward.” Service center executive

arrow down SMU Price Momentum Indicators All Moved to Lower

Steel prices are under pressure with no sign of a let-up. Steel Market Update has moved our flat rolled and plate steel Price Momentum Indicators to Lower (previous to today, coated steels were at Neutral while all other products were already at Lower).