Final Thoughts

Steel Demand Not as Robust?

Steel demand is still strong, but not growing at the robust rate it saw for most of the year. About 68% of the service center and manufacturing executives responding to this week’s questionnaire said they see flat or stable demand. A small percentage (9%) still see demand continuing to improve. But a notable 23% now report declining demand. Here are a few of their comments:

“Demand is still strong. Especially for imports.”

“I blame this on seasonality and nothing more.”

“People are now waiting as prices fall. Nobody wants to buy inventory that will be overpriced in 60 days.”

“All contract buyers are forecasting more demand in 2022. Year end is always the start of a slower pace.”

“The auto chip shortage appears to have bottomed. We’ve seen some improvement in auto.”

Mills Have More Availability

For much of the past year supplies were so tight, buyers were in a panic just to find steel – at almost any price. Today, more than eight out of 10 respondents said they see more availability from the domestic mills, though not in abundant tons:  

“Not crazy amounts, but there are whispers of more tons out there.”

“Slight increase. Don’t expect much till January. Then the tide will change.”

“More availability on contract, not so much on spot.”

“It depends on mill and location. HR is more available, but CRC and HDG remain tight. I expect to see value-added spreads widening.”

“Yes, but mills are shipping 2+ weeks late again from promised lead times.”

Some Buyers are Staying on the Sidelines

The market is split roughly in half between buyers who describe themselves as active buyers and those who say they are sitting on the sidelines to see how prices play out:

“We have too much inventory now. We overbought when lead times were out.”

“We’re active, but only buying minimum inventory.”

“Customers are being cautious.”

“I see customers buying small import quantities and staying on the sidelines as long as possible.”

“We’re still very busy and need metal to complete our orders.”

More Spot Buying, Less Contract

The majority of buyers (60%) responding to the survey plan to stay with their same mix of contract and spot tons. Three out of four of the remainder, however, anticipate buying more on the spot market. Rather than lock in a contract price, even an indexed one, some plan to play the market as spot prices decline:

“As a mill, I see many customers going more spot than contract with the expectation that spot prices will undercut contracts.”

“One domestic mill already advised us they will be selling less on contract next year, while other mills want price to be negotiated at time of delivery. Combined with competitively priced imports, there is no benefit to buying on contract next year.”

“Contract offerings from domestics are less, so we will have to do more spot to serve our established business and the growth we anticipate in the first half. We will also be utilizing a lot of import.”

“Much of our sales are spot. It does not make sense to tie them to contracts. There’s too much risk going into 2022 at these price levels.”

“The mills are not offering any good contracts, so we will go spot and more import. They are breaking all-time records and yet prefer to be greedy versus partnering with us.”

Time to Lower Prices?

Half of the service centers responding to SMU’s poll this week said they are holding the line on prices. A few (14%) continue to raise prices. But a significant percentage (36%) say they are now lowering prices for the first time this year:

“We find we have to compete at lower transaction prices in pockets of our business.”

“Demand is down, prices are falling, so everyone wants to get rid of higher priced inventory before year-end.”

“We must raise prices to absorb orders placed based on spot and CRU monthly agreements, which are now at the highest level of the year.”

How Low Will HR Go?

How low will hot rolled prices go? Not that low, say most buyers. Two out of three respondents believe hot rolled steel prices will finish the year at $1,800 per ton or higher. Less than 10% foresee the price slipping below $1,700 per ton in the next two months. Calculated as a weighted average, the prevailing prediction is for an average HR price around $1,834 per ton at year’s end:

“I think prices have plateaued and will be relatively similar for some time.”

“I expect to see more ebbs and flows with overall softness, but I believe we’ve plateaued and not peaked. There is a difference there for sure.”

“Imports will influence hot rolled, but the outages at the mills and a little discipline from the producers will keep prices from falling below $1,700.”

“Hot rolled availability is increasing, but the mills remain firm. [One mill] is willing to extend and pull forward outages to balance softer demand vs. chasing price.”

Cancellations Coming?

While it’s not a common occurrence, buyers have been known to cancel orders in times of high price volatility. With hot rolled steel prices on the way down – and other products likely to follow – cancellations could become a problem. Especially given the big dollars that could be lost from even a modest correction in the sky-high steel prices. In Steel Market Update’s survey of the market this week we asked: Have you cancelled any steel orders or seen cancellations from customers in anticipation of declining steel prices? About 14% of those responding reported some cancellations.

One service center executive was upset that we would even raise the issue: “The question in your survey on cancellations is inappropriate and out of bounds. It is part of the problem in our industry and should not happen. Purchase orders are binding contracts. Cancellations due to price concerns are unethical and should not be permitted or encouraged. Please remove this question from future surveys. We do not cancel orders and do not like the thought of it happening to us. The idea should not be spread or planted in steel buyers’ minds.” 

He added: “A customer who would cancel a confirmed PO gives our industry a bad rap. That’s why we try to do business with people we know, like and trust.”

Not to be gloomy, but let’s hope ethical business practices do not prove to be another casualty of the steel price correction that may be coming.

SMU Events

Planning a trip to sunny Florida this winter? Why not take in the Tampa Steel Conference while you are at it? The live and in-person event will be held on Feb. 14-16, 2022, at Marriott’s Water Street Hotel in Tampa. Click here to review the full agenda. 

As always, we appreciate your business.

Tim Triplett, SMU Executive Editor, Tim@SteelMarketUpdate.com