Steel Market Update Flat Rolled Price Momentum at "Neutral"
The market was surprised with the release of the MSCI shipment and inventory data. We have been hearing on conference call after conference call – from Metals USA to all the domestic steel mills – about how the low service center inventories would create the surge needed for the mills to tighten their order books and increase their pricing. With flat rolled inventories at approximately 2.5 months (2.6 unadjusted and 2.4 seasonally adjusted) the need for service centers to buy into a price increase is negligible.
However, SMU does believe - over the short term which could be a matter of weeks - prices most likely will adjust higher and we could see Hot Rolled pricing move back above $700 per ton.
Our own SMU steel market survey from this week has been measuring service center inventories however, we are not as sophisticated as the MSCI and we gather inventory numbers for a number of small and medium sized service centers and we do not weigh the numbers received from larger service centers. The net result is our numbers were also up but not to the degree of the MSCI. We are showing inventory levels at 2.11 months which is up from 1.93 two weeks ago. So, we agree there is a growing trend (or slowing trend) in the service center inventories and shipments but we too are stunned by the MSCI numbers.
Earlier this week, prior to seeing the latest MSCI data, we briefly moved our SMU Price Momentum Indicator to “Higher” from “Neutral”. We made this move because we were having direct discussions with large manufacturers and service centers who were negotiating prices today with the domestic steel mills at levels $20-$30 per ton higher than what they paid this time last week. Although the buyers were agreeing to pay slightly higher prices in the short term – none of them felt the price increases would hold for more than a few weeks.
Once the MSCI data became available and we saw the increase in both the inventory levels and the months on hand we changed our SMU Price Momentum Indicator back to “Neutral”. The one reason used by the domestic mills over and over – low inventory levels – had been removed.
One of our manufacturing sources sent us an email late today and he expressed the opinion held by a number of companies and worth mentioning at this time, “Just too much steel. You can make announcements and play games all day with what people will or will not believe about prices going up or down. That might get you a temporary increase and a pause from the real issue which is overcapacity. The problem doesn’t get fixed until someone turns out the lights and locks the door.”
We will continue to watch the pricing issues very closely over the following weeks as we believe they will truly be interesting to all involved in the flat rolled steel industry.
The above article was published in our Steel Market Update newsletter earlier this week. For up to date and timely information you can sign up for a trial to our newsletter or you are welcome to become an annual member. You can learn more by clicking on the buttons below.