Steel Market Analysis from September 2009 to Today
Steel Market Update participates in conference calls with steel analysts from time to time in order to provide insights into steel prices, steel inventories and demand as well as the steel market trends we see during our analysis of the steel market.
On Friday of last week Steel Market Update (John Packard) participated in a conference call hosted by UBS senior steel analyst Timna Tanners. A copy of the power point presentation slides can be found on our website – www.steelmarketupdate.com – in the Media Center section of the site (click on View Gallery next to Files). Here are some of the points made during the call:
The last time SMU spoke to the UBS clients was in early September 2009 – at a time when prices were still rising although there were early signs of a potential change. Those early signs were an $80 per ton price increase announcement by AK Steel while at the same time there were indications U.S. Steel was willing to hold prices between November and December 2009 (based on our sources at the time).
In early September our hot rolled pricing range was $520-$540 per ton with an average of $530 per ton. Prices then peaked at the end of September when our SMU range reached $540-$600 per ton with an average of $570 per ton (a note here – when we speak of September prices we are referring to transactions being conducted for future delivery which in September would have been late October to November lead times).
Prices peaked at the end of September due to discounting the domestic mills conducted in order to fill their end of the year order books. This practice of discounting between Thanksgiving and the end of the calendar year lead times has existed for most, if not all, of my 33 years involvement with the industry.
The reversal of the cycle began just prior to Thanksgiving and the first week in December as lead times stretched into January and beyond and the practice of late year bargain hunting came to a close. The “up cycle” continues to today.
A good portion of our presentation was taken up with a discussion of the results of our most recent market survey. Rather than repeat the dialogue here we again recommend taking a look at the power point presentation online – or, if you prefer you can send an email to firstname.lastname@example.org and we will forward a copy of the presentation to your email inbox.
The bottom line to the presentation was to note the SMU Buyers Sentiment reading continues to be in the red or pessimistic area at -30%. There is an uncomfortable feeling within the steel buying community regarding the pace and scope of the price increases being passed along by the domestic steel mills. Many companies are unable to pass through the increases to their customers which prevent them for taking speculative inventory positions. Inventories remain tight which in turn keeps buyers having to purchase steel at the prevailing rate having no other options.
Market Momentum is for prices to continue to move higher. Steel input costs continue to rise and psychologically the domestic market has been programmed to accept higher price levels with the rising scrap prices in the U.S. market.
Demand levels are slowly improving – although production levels at the domestic mills continue to struggle to reach the 70% utilization rate. Automotive build schedules and demand has clearly become the reason why mill lead times are extended at some mills and not extended at others (the haves and the have not). Other areas such as the Agriculture and energy markets are showing improvement. Construction continues to be a drag on the economy and is expected to continue as such throughout this calendar year.
Supply is a concern – especially with a number of blast furnaces and the Severstal Warren steel mill coming back on line. Weather has created short term issues and we do not believe the over-supply scenario will be noticeable until lead times reach into the June and July 2010 time frame. This should be around the first of May.
There is a lot which can happen between now and then – and one of the sleepers we need to watch are union contract negotiations as a number of mill contracts are up later this year.
If you would like to learn more about the North American steel market including pricing trends for hot rolled, cold rolled, galvanized and Galvalume - you can register for a free 4-week trial to our newsletter and full access to our website - www.steelmarketupdate.com. We look forward to having join us first as a trial member and then hopefully as an annual member....