Analysis of AK Steel Price Announcements and Scrap Pricing
A Steel Market Update analysis of the six most recent AK Steel flat rolled steel price announcements and how they relate to scrap price movements. We use the Steel Market Update hot rolled steel index for our comparion.
Having represented a domestic conversion (galvanizing) mill for slightly more than 10 years – plus having a total of 21 years actively involved in the service center industry (including purchasing steel for a small portion of that time) – we have learned to take mill price increases with a grain of salt. Price increases are a way of keeping momentum headed in the direction the mill wants it to go whether the reasoning for the increase has any validity is not always clearly known or understood.
AK Steel publishes their increase announcements online – we commend the mill for having the integrity to publish what they are telling their customers (at least to a degree – they don’t publish when they come off their announced increases – but at least it’s a start). You can find their increase announcements on the website in the “news releases” section of the site.
What we decided to do was to spend part of our weekend looking at the AK Steel price announcements going back to late summer/early fall 2009 – or back to the point in time when SMU recognized prices were beginning to back up. On our pricing index history we captured prices “backing-up” the week of September 29, 2009 after 16 weeks of prices moving higher.
As we looked at the AK Steel price history the mill had made a price increase announcement on September 2, 2009 (without what has become their normal reasoning of higher demand coupled with higher steelmaking input costs). At that time the increase would have been for November/December lead times. As our indexes (and other indexes published during the 4th Quarter 2009) the AK Steel September price increases did not stick in the spot market.
AK did not attempt another price increase until December 8, 2009 (lead times were then into early to mid first quarter 2010 production)which provided the little extra “push” needed to get prices off the short cycle bottom and once again moving higher. The December 2009 announcement was for a $30 per ton increase.
AK Steel since that point has increased prices in January ($60), February ($50), March ($40) and now again in April ($40). So, the total amount of price increases announced by AK Steel which impacted 2010 production has been $220 per ton ($11.00/cwt). This has resulted in prices moving off their lows in early December 2009 of $510 per ton (using SMU numbers and we intentionally did not take our indexes as low as CRU and others who picked up on the special end of the year deals for large tonnage taken by the domestic mills – but not available to most buyers). Prices moved off the low if $510 per ton in early December 2009 to the current index of $690 per ton – which is $180 per ton of the $220 announced to date – which means AK Steel has been collecting all of their previous announced increases to date. The missing $40 per ton is for their latest price announcement for June production.
Shredded Scrap Numbers during same Time Period
Out of curiosity Steel Market Update looked up the shredded scrap price history during this same time period (we used American Metal Market numbers for this exercise). We wanted to see what correlation there has been between the shred numbers (total amount of increase) versus the AK Steel price announcements.
From the week of December 4, 2009 – when AMM had Chicago Consumers scrap pricing on shred at $248 per long ton until the week of April 9, 2010 when shred was posted at $395 per long ton – there has been an increase in shred of $147 per long ton. Not even close to the $220 being asked by AK Steel.
So, we decided to take a look at #1 Busheling – which is less important to AK Steel as an integrated mill – but very important to the mini-mills who need the price stock to charge their furnaces. In early December 2009 AMM had #1 Busheling at $279 per long ton. Since then it has increased by $195 per long ton to their most recent price publication of $474 as of April 9, 2010. Much closer to the $220 being asked by AK Steel.
Did Scrap Prices Move with the Steel Price Change in late May / early June 2009 ?
We asked ourselves the same question you might be asking yourself – Steel prices were rocketing lower during the first 5 months 2009 – did scrap prices do the same? According to AMM data #1 Busheling out of the Chicago market was at $260 per long long ton the 1st week of January (#1 Bush had been sitting at $260 since early December) and it moved lower bottoming out at $170 per long ton the 1st week in May 2009. So the answer to the question is “yes” scrap prices did follow steel prices (or vice versa).
Scrap then moved higher over the following 19 weeks and peaked at $340 per ton on September 11, 2009. SMU picked up the decline in steel prices a couple of weeks later.
Where does the industry think scrap prices are headed?
The question which has been raised during discussions with scrap dealers (and reviewing comments being made during earnings conference calls over the past couple of weeks) – there have been many who feel scrap prices may slide as we work out way through April and into May. The keys to scrap are not much different than the keys to steel – inventory levels at the steel mills, how much dealers have to pay for new scrap, is there competition from foreign sources (inbound scrap – or on the flip side – exports of scrap), etc.
With the Chinese looking like they are orchestrating some sort of iron ore fiasco in their country and with their sources of supply – the expectation is they will come back into our scrap market and help put a bottom to the market – just as the Turkish steel mills are doing on the east coast right now.
But – from our point of view – there are too many “ifs” in the current scrap (and steel) numbers – enough to cause us to move to neutral. That is our opinion – we welcome yours.