Before we present our latest index numbers for this week we want to address the issue of “discounting” vs. “not sticking” when used in relation to mill pricing. To Steel Market Update (SMU), having worked in the steel industry for 3 decades, there is a significant difference between the two terms. Discounting are price adjustments made for various reasons in order to meet or beat your competition. In today’s market negotiations are most fruitful when dealing with value added products which carry various extras or add-ons to the initial base price. Waving extras, charging old coating extras, eating freight can be negotiable items and can affect the total transaction pricing. It is normal for mills to negotiate extras and offer “discounts” for volume, etc. in both tight and loose markets.

When mills announce price increases and then are not able to collect any of the increase (whether partial or the entire amount) and are forced to remain at their original price – or – even worse are forced to reduce their final transaction price – that is when prices are “not sticking” (the terminology is from the saying to “throw it against the wall and see what sticks…”). Not sticking is when the ability to collect any increase has failed.

The market had a flurry of price increase announcements during the early part of January. All of which have stuck as time has progressed. Over the last week SDI came out with HR ($31.00/cwt), CR (($36.50/cwt) and Galvanized ($36.50 HR base and $37.00/cwt CR base + extras) which are essentially in line with all of the other mills for March. SMU is hearing new numbers for US Steel customers at $32.00-$32.50/cwt HR, $37.00/cwt base CR and $38.00/cwt base Galvanized for April. These new numbers are points of reference from which to negotiate transaction prices. The may/may not “stick” but there is no reason to believe they will not be negotiated and some discounts may be offered.

SMU indexes reference the range of transaction prices for the vast majority of the spot market buyers. The key will be in a couple of weeks will the SMU indexes continue to rise, remain the same or will they begin to fall?

To SMU what is important is the trend and momentum – have the mills maintained or lost their ability to move prices higher? Our contention right now is the mills have not lost their ability to move prices – although there clearly is resistance building. The drive to protect oneself from price increases has run its course. New buys will be based on true needs and not in reaction to higher prices.

“Steel is not tight now” one manufacturer told SMU this afternoon, “no one is afraid they can’t get steel. If they are tell them to give me a call….”

Many steel buyers believe the domestic steel industry is at, or very close to the peak in this pricing cycle. As one service center executive put it to SMU this afternoon, “It will take a month or two for the mills to get it through their thick heads that they can’t get the tons they need to run at these prices.” But, the same individual pointed out the domestic mills, “…feel they have to get it [higher prices] when they can.”

It seems as though the market may well be at a peak in a cycle – but the trend – the collective will to keep prices moving higher by the domestic steel industry – has not yet shifted. But the mills are negotiating and we will see what tomorrow brings….

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