The day prior to the Severstal price announcement Steel Market Update adjusted our Price Momentum Indicator to Neutral from Lower.

It is important for SMU to explain our Neutral Price Momentum rating and why we have chosen to take a Neutral stance at this point in time – especially with three mills having made formal price increase announcements. In our rating system we have three choices: Higher - meaning prices are rising and will continue to rise, Lower – meaning prices are moving lower and will continue to do so and, Neutral – which means the market is potentially in transition from Higher to Lower or vice versa. A move to Neutral is our way of warning our members to remain vigilant and aware of potential changes with their mill suppliers (those buying spot service center tons also need to be aware of potential changes down the road).

As many within the steel industry already know – the fact a price increase announcement has been made does not necessarily mean the increase will be collected either in part or in its entirety. Price announcements can be made for various reasons. It appears the main reason for this most recent increase is the tightening (or removal of) margin between a mills cost and selling price.

Historically, the most successful increases happen when there is a shortage of supply and building demand which causes lead times to become extended. This scenario does not apply in the current market so the impact of the price announcement is not yet fully understood. Thus our Neutral rating.

In our opinion ultimately the market will determine how much of an increase will stick and how soon will it be collected. It has been Steel Market Update position to take a neutral stance during the negotiation process and allow the buyers and sellers to determine the fate of any increase through normal supply/demand scenarios as well as normal competitive situations which may exist between various steel mills. We do not want to “push” either side to accept the position of the other but rather let market forces dictate the end result.

For more information about trends in the North American steel markets including price ranges and indexes on flat rolled steel products - hot rolled, cold rolled, galvanized and Galvalume steels - you can register for a free trial to our newsletter (see button below). You are also welcome to become an annual member to Steel Market Update and there is more information available in the subscription section of our website.