SMU Adjusts Flat Rolled Price Momentum Indicator to Lower

SMU asked the 560+ individuals who are invited to participate in our bi-monthly market trends questionnaire what direction steel prices will head over the next 30 days. In early February, 17 percent believed prices were heading higher, last week the number was 7 percent. In early February, 38 percent believed prices would move lower, last week that number was 49 percent.

Service Center Spot Pricing to End Customers: Survey Says…

A second key area of concentration for our survey is how service centers are handling spot prices to their end customers.  

Over the past month manufacturing companies have reported changes in the spot numbers being offered into their companies by distributors. Last week 26 percent of the manufacturing companies responding to our questionnaire reported steel distributors as lowering spot prices, while only 16 percent reported distributors as raising prices. As you can see by the graphic below, at the beginning of the first quarter, 64 percent were reporting higher spot prices and none of the manufacturers reported distributors as lowering prices.

When looking at the service center responses to a similar question posed last week, we found only 11 percent reporting their company as increasing spot pricing. This is down from 42 percent two weeks ago and 71 percent one month ago. Thirteen percent of the distributors reported their company as lowering spot pricing to their end customers.

SMU Flat Rolled Inventories Months of Supply: Data Providers Say…

Steel Market Update conducts monthly surveys of a wide variety of flat rolled and plate service centers and wholesalers. This analysis is separate from our bi-monthly market trends questionnaire.

SMU believes service center inventories are “balanced” based on data received from the service centers who provide inventory, shipment and on-order data to us. At the end of January, we pegged flat rolled inventories as being 2.39 months of supply (if you would like more details you can upgrade to become a Premium subscriber as they get a portion of the data as part of their membership).

Service Center Inventories: Survey Says…

In last week’s survey, 95 percent of the service centers reported their inventories as being either balanced or higher than they would like (84 percent said inventories were “comfortable” and not needing to be built at this time, and 11 percent stated they have “too much” inventory).

Steel Buyers & Sellers are Telling SMU…

The steel buyers with whom we speak are not looking to pay more for steel. Those that are buying are reporting the same to lower offers coming from the steel mills.

One large hot rolled buyer who pegged the current HRC market at $550-$600 felt the market could slip as low as $500 and the full year could be $500-$600 per ton range bound.

The head of commercial for one of the domestic steel mills confided in SMU that even though their current order book is quite good, they may need to lower prices (“sweeten the pot”) on their main product next month. This mill referred to competitive tons coming in from foreign sources in South America and Asia as their main concern.

SMU Price Momentum Indicator Now at Lower…

What we have reported above, as well as other data points we are collecting, leads us to believe flat rolled prices will move lower over the next 30 days.

SMU is not of the opinion that flat rolled steel prices will crash; what we anticipate is a slow leak of maybe $10-$20 per ton over the short term.

Keys That May Work to Turn the Market…

What is yet an unknown will be how the shutdown at USS Great Lakes and the 48-day outage of a blast furnace at Gary Works will impact supply? Right now, we anticipate U.S. Steel is building inventories and moving production around (including to Big River Steel), which would limit any immediate impact on the market.

Scrap prices are forecast to move sideways to up $20 per gross ton higher at the beginning of the month of March.

In the end, prices are tied to supply and demand. It appears we are balanced right now. Hiccups in production (such as fires at steel mills that dramatically impact production) or a surge in demand could turn around momentum.

A black swan event such as the coronavirus has the potential to negatively affect demand and the supply of parts into the North American markets. The coronavirus may also push cheap Chinese steel into the world markets, depressing prices and making foreign steel more viable for the U.S. markets.

Stay tuned….