SMU Price Momentum Indicator Adjusted to Neutral from Lower
Steel Market Update (SMU) made a decision over a year ago to move our SMU Price Momentum Indicator to “Neutral” when a domestic steel mill announces a price increase. A Neutral indicator means the market is potentially in transition although the actual numbers (and direction) may not yet indicate any changes in price direction.
We have made the adjustment to Neutral in order to allow the steel mills and their customers the opportunity to let the market work and let the negotiations between the two parties to determine if prices will rise, fall or remain stable in the coming days.
It is normal for domestic mills to keep open price quotes to their customers when the first price increase announcement is made. It is our understanding this practice continues this week.
The next important item will be to watch the bookings at the domestic mills and how lead times are impacted. The AK announcement comes at a time when hot rolled lead times are short – 2-5 weeks – and with short lead times mills have a need to try to attract orders in order to keep the mills running. If the buyers are supportive of the AK increase – or believe prices are changing – this could cause a surge of orders this week and push lead times out 1, 2 or 3 weeks. If we do not see a push in lead times then the domestic mills will have a problem collecting any increases.
If other domestic mills do not support the AK move it could die a quick death. Our expectation is for other mills to make similar price moves (+$30/ton as opposed to +$50) in order to take control of momentum and shift negotiations.
Watch for other domestic mill announcements this week and early next week (this is already occurring). Second, watch lead times which will indicate if service centers move to restock and if so, how much material do they actually need. This is a big question mark. Here, at the SBB conference, a couple of the mills have told SMU their order book has become very active this week. Again, the question is the orders being placed just taking from orders which would have been given in a few weeks anyway?
We will be watching negotiations very carefully over the next week or two to see if prices indeed reverse trend and move higher.