Final Thoughts

When it comes to contract negotiations, the U.S.-based steel mills are all working toward increasing prices (reducing discounts/charging for full extras, freight, etc.). Not every mill is being “reasonable” in the negotiation posture. One service center executive told us that mills were more willing to negotiate spot offers but that they were holding their ground regarding 2022 contract offers.

“Mills are being very firm and expect significant price increases year over year,” one service center steel buyer said. “We feel the mills are keeping the price in the market artificially high while contracts are completing, because they want to lock in contracts before any drop in the market happens. Mills have been justifying their position to decrease discount rates on annual contracts due to lack of supply. However, we have been offered very significant tonnage via spot over the last week, which makes us believe the tide is turning.”

Case in point: “Spot tons have been coming out of the woodwork. End-of-year spot deals are being offered for December production, using November CRU -7% as a start,” he said. “Mills are willing to negotiate even more beyond -7% too. This is for HR, CR and coated. In the past three business days we have been offered over 15,000 tons without prompting any of the conversations.”

But the lessons learned over the past 12 months are keeping end-users from jumping ship and taking their business overseas. We are hearing from service centers that end-users are reluctantly booking contracts at the new prices.

A Midwest-based service center told us regarding their negotiations with their end customers: “So far we are pleasantly surprised with how our customer conversations are going. We have roughly half of them done, and most customers are open to a new structure that is fair in all markets and are still very concerned about supply going forward – especially once auto starts going at a better clip and if OCTG keeps gaining strength. With oil prices rising, things could get interesting in Q1.”

Another service center spoke about the competitive landscape squeezing margins: “Customers are seeing lower prices due to the surge of imports, spot availability being more abundant, and service centers lowering margins to move inventory. Customers are still accepting of prices being passed on. However, there is a more competitive landscape on the supply side, which is lowering transactional margins.”

In some cases, service centers may be using additional foreign tons to either get enough inventory or improve margins. One of the service center buyers told us: “We have purchased more foreign steel than we have in the past five years. Our plan is to continue to purchase in the most competitive way possible, which likely includes foreign into 2022.”

Steel traders are advising us that foreign hot rolled offers are currently running $1,360-$1,500 per ton ($68.00-75.00 per cwt) FOB domestic ports. We understand there are offers from Vietnam, Mexico, South Korea, Serbia, and Turkey.

Here are some of the comments we received this week as we canvassed steel buyers for spot pricing information:

“Nothing new to report. We bought heavily in August at $91-92.00/cwt and haven’t needed to buy any HR since. Holding off until November to buy any more HR – even if we run out.”

“Demand is steady now. But some concern on price might put some on the sidelines for ‘stock’ buys but not for projects.”

“Mills are too aggressive on contract pricing versus prior years.”

“Domestics have offered us about 75% of the contract tons we bought in 2021 for 2022. That is fine – import offers are much more attractive.”

“Mills don’t want to negotiate on contracts fairly; some want CRU + deals and charge more than book adders. … Pure Greed!”

“As we chased prices up, we will chase them down. Clearly a correction on price will happen. . … As long as demand is strong, we can be successful. But trade policy changes could be an issue – especially how Section 232 is handled.”

“We have good-quality, attractively priced imports coming in. Going very light with domestics for the first half.”

33rd Tampa Steel Conference – Bigger & Better

The Tampa Steel Conference added economist and global strategist Walter Kemmsies as a featured speaker at the 2022 event in February. Walter will have some interesting perspectives to share on infrastructure as he is working with the Department of Commerce on supply chain competitiveness focused on how to improve infrastructure. He will complement the other 18 speakers already confirmed to speak at the conference. Others include Cleveland-Cliffs President and CEO Lourenco Goncalves, Wolfe Research Senior Equity Research Analyst Timna Tanners, Majestic Steel USA President and CEO Todd Leebow, Steel Manufacturers Association (SMA) President Philip Bell, American Iron and Steel Institute (AISI) President and CEO Kevin Dempsey, and attorney Lewis Leibowitz.

This will be the 33rd year for the Tampa Steel Conference, which will be held from Feb. 14-16. Port Tampa Bay and Steel Market Update are working together to provide a unique experience at the 2022 conference. We have expanded the content and the number of speakers, while continuing with optional events such as the golf tournament, port boat tours, and special networking cocktail parties to enhance your conference experience. Costs to attend are reasonable, and you can learn more about the conference agenda by clicking here.

Managing Price Risk Workshop – Nov. 2 & 3 (Hedging 101)

On Nov. 2-3, we will host one of our Introduction to Steel Hedging Workshops (formerly called Hedging 101) with our instructor Spencer Johnson of StoneX. This workshop will help you understand how to use financial derivatives as an instrument to hedge price risk, protect margins, protect inventory values, or offer long-term pricing to your customers.

Building from the basics of why firms use these products and what advantages they offer, participants will take away a concrete understanding of hedging basics, terminology, and a knowledge of the market structure they will need to build a risk-management strategy for their own company. This will be a virtual event covering two half days.

“SMU has done a great job of providing these workshops, from beginner to more advanced. They’ve done a great job of helping to educate the community as a whole. Our company is a very strong believer in training. We’ve sent all levels of people in our team, from CFO to VP of Production and buyers – all attending these workshops to continue to get educated as we move forward and to help our risk management strategy.” – Chris Shipp, Vice President – Supply Chain, Priefert Steel

You can find more information about this workshop here, and you can register here 

If you have any questions about your SMU membership, increasing the number of recipients, upgrading to Premium, or questions about renewal rates, please reach out to Paige@SteelMarketUpdate.com. She can also be reached by phone at 724-720-1012.

If you would like to know how to become a sponsor or exhibitor at one of our conferences or other events, please contact Jill@SteelMarketUpdate.com. Jill can also be reached at 303-570-6570.

On a sad note, I heard today from Behlen Manufacturing that Phil Raimondo, chairman and CEO, passed away on Oct. 3. I considered Phil to be a friend, and he was an avid supporter of Steel Market Update going back to our early years. I know he was one of the few who could say they attended the very first SMU Steel Summit in Las Vegas, and I don’t recall him missing one over the years. We spoke about the challenges of running a company, about COVID, and what Behlen was doing to support their employees. I always found him to be fair, honest and open. He will be missed.

As always, your business is truly appreciated by all of us here at Steel Market Update.

John Packard, John@SteelMarketUpdate.com