SMU Price Momentum Indicators Adjusted to Lower on HRC and Neutral Everything Else

Steel buyers are beginning to tell Steel Market Update of mills looking for tonnage. This is never a good sign for prices.

When it comes to hot rolled, the pressure is not for higher prices, there is a struggle to maintain. One mill admitted to SMU today that they were losing HRC orders if they failed to make price concessions. We expect this will become more prolific over the next 30 days.

We have adjusted our hot rolled price momentum indicator to Lower.

SMU has been advised scrap prices are going to be down $20 to $40 per gross ton in September. This will create pressure for steel mills to lower prices as well.

We are working on our service center inventories and will have our “Flash Report” out for data providers early next week. When looking at our analysis for the end of July, we saw flat rolled inventories rise from 50.9 days of supply to 56.1 days. Our expectation is for stble to higher inventories to be reported again in August based on the inbound inventories data we have been receiving from our data providers. (SMU Note: August analysis as well as all future analysis will become available to our Premium members beginning this month)

Steel buyers are advising the cold rolled, galvanized and Galvalume markets as being stronger than that of hot rolled. Yet, buyers are expecting weakening demand, fear of automotive labor outage, seasonality issues and too much production as ultimately weighing on CR, GA and AZ prices.

Steel Market Update is adjusting our cold rolled, galvanized and Galvalume Price Momentum Indicators to Neutral from Higher.

Plate remains at Neutral.

SMU is concerned about the possible impact of any labor stoppage at automotive facilities. Any disruption would impact flat rolled products and open-up order books for mills that normally are not big players in the spot markets.

The General Manager of a service center provided SMU background regarding price momentum. Here is some of what he had to say, “If by lost momentum you mean pricing, then I’d say yes. There’s zero chance of higher prices from here on out for a while. On the order book side, HR and Plate are weak, while CR and Galv are less so, but I expect those products to weaken shortly as well.

“I’m fairly negative in my outlook as there appears to be few if any fundamental elements that are positive for steel prices in the near term:

• Domestic production:  negative (too high)
• Raw material costs:  negative (scrap lower in Sept and Global IO pointing to stable/down)
• Imports:  negative (no future drop in trend expected)
• Demand: negative (when compared to 1H’19 and recent years’ trends, as well as recent economic data (ISM, etc.))
• Inventories: neutral to slight negative (not in bad shape, but increased orders in summer for fall delivery will be increasing on-hand in near term as material is arriving)

“HR moving down to the $500-$530 range is my expectation for the next few months, and below $500 if there’s a disruption in the auto production arising out of the labor negotiations.”

A manufacturing company told us earlier today, “I’m really confused, I feel like they have lost pricing momentum on flat rolled but CRU going up shows they haven’t lost much….  Mills calling for tons on all products which makes it more confusing.  My gut tells me cracks in the armor.  Which Futures reflect…”