Steel Products

SMU Founder John Packard Discusses Domestic & Foreign Steel Pricing

November 9, 2021

Steel buyers are “confused” as are some traders as to what deals are being offered into the hot rolled market right now. Steel Market Update has been advised by a couple of large HRC buyers of offers below $1,600 per ton ($80.00/cwt), while at the same time we have spoken to buyers who continue to be quoted $1,860 per ton. There is a disparity between mini’s, integrateds and re-rollers, and there are disparities between mills. Everything is a nice gray color in a world that appreciates black and white.

With European hot rolled potentially opening to U.S. customers now that the Section 232 issues have been resolved, we are hearing of HRC price offers out there under $1,400 per ton ($70.00/cwt). Again, as with the domestic steel mills, it seems there is a wide range of prices being discussed from Europe, Mexico, Korea and elsewhere. Where the market ultimately shakes out is still an unknown.

We are aware of some of the domestic steel mills offering “foreign fighter” pricing in an effort not to lose market share. This is not with every mill or on every product being offered. This is where it’s important for steel buyers to stay close to their domestic suppliers while being aware of the foreign offers being made available to them.

One trader told me this afternoon they decided to take their tons to Mexico and not the U.S. until market prices are clearer. They did not want to be the price leader in a down market.

An end-user told me today, “The steel market is in transition…which is the best way to describe it.” The domestic mills are struggling to deal with the imports stacking up at the ports, he said. This is squeezing the domestic mill margins. At the same time, importers are getting aggressive with their prices. “Importers are pricing in the effect of the CME HR futures, which in turn drives down transaction prices almost as a self-fulfilling prophecy,” he said.

Our recommendation is for buyers to be careful and only buy from trusted sources. With all the problems with ocean transportation, port congestion, and lack of trucks and railcars…well, now is not the time to make foolish speculative deals (speculative is in the eye of the beholder and not for me to decide what makes a good vs. foolish transaction).

Reminds me (again) of the comment made to me when I started Steel Market Update: “John, I don’t know what you are going to need to write about 30 days from now….” Thirteen years later the volatility persists, as does the need for quality information.

One of the issues I am hearing from multiple sources is the status of inventories and the need (or lack thereof) of end-users to buy more material. One distributor told me this afternoon, “If everything shows up on time, we have too much steel.”

The SMU Service Center Inventories & Shipments “Flash” Report, which was provided to service center data providers late last week, is indicating flat rolled inventories around 2.6 months of supply. We believe that may rise as not all the automotive-focused distributors had reported prior to the Flash Report being produced. The final report is due later this week to all data providers and our Premium-level members. If you would like to learn more about becoming a confidential data provider, please contact Estelle.Tran@crugroup.com. If you would like to upgrade to Premium, please contact Paige@SteelMarketUpdate.com

I believe service center (and end-user) inventories will need to be “rightsized” in the coming months. Exactly what that means for mill order books and pricing is an unknown other than the expectation of continued slippage in pricing.

As expected, the flat rolled (sheet) steel mills have begun to announce new zinc coating extras. To date, SMU is aware of changes at SDI and NLMK USA. We anticipate other mills will follow their lead. Zinc prices surged to record highs during October 2021. In early October, LME zinc was trading below $1.40 per pound. By mid-October, prices had jumped to $1.73 per pound. Since then, prices have retraced and are currently trading just below $1.50 per pound. Steel buyers need to stay in touch with their galvanized suppliers to see what can be done to reduce their exposure to any change in extras. The new extras are effective Q1 2022.

John Packard – Founder, Steel Market Update