Steel Prices Moving Lower - SMU Price Momentum Indicator Pointing "Lower"
Flat rolled steel prices have begun to move lower over the past couple of weeks. Earlier this week Steel Market Update changed our steel price momentum indicator from "neutral" to "lower" indicating prices will continue to move lower over the next 30-60 days.
The following is an article SMU published in our newsletter earlier this week:
Steel Market Update has moved our price momentum trend from “neutral” – meaning prices are projected to be in transition over the next 30-60 days – to “lower.” We are seeing signs of price increases for June failing to stick and we have seen some slight erosion to hot rolled and galvanized over the past week. There is not enough data out there yet to determine if overall prices will end up “rolling” from May into June or if there will be a slight decrease in our average prices.
As one large service center buyer put it to Steel Market Update early this week, “There is a lot of posturing going on – both by the steel mills and the service centers….” A number of service centers have shared lower “offers” or “firm bids” they are making to their supply base (without acceptance by the affected mills) while at the same time the domestic mills were doing their best to try to maintain the prices they already have in place – but there are grumblings out of the mills of an acceptance that business has changed.
News of lower prices (or posturing regarding lower prices) was circulating amongst a number of the service centers at the Association of Steel Distributors (ASD) regional meeting in Pittsburgh late last week.
The whispers were notched up a few decibels on Monday with numerous mills names mentioned as “the one” who broke ranks and was offering lower prices. Either that or the newly rumored mill was named to be the one who “matched” another mill’s lower offers.
“AK has gotten back in the mix,” one of our service center buyer contacts told Steel Market Update first thing Monday morning. “I guess the cash for clunkers has petered out and they now recognize that the service centers do exist….” The word on Monday morning was AK was looking for large tonnage orders of galvanized for which they were willing to take prices to levels not seen for a couple of months.
Other service centers who buy tonnage from AK Steel on a regular basis hadn’t heard from the mill over the past few days. So, news of a lower offer was indeed news to them.
By late in the day on Monday we had received word of any special offers on galvanized were tied to large tonnage offers – “ten thousand tons” minimum was said to be what the mill was looking for before offering up reduced base pricing according to our sources.
As many who read SMU on a regular basis know – based on our experience in the flat rolled steel industry AK Steel is one of the key mills we watch for evidence of strength or weakness as they tend to make early moves to support their order book (or bottom line). Today is the 11th of May and AK Steel has been conspicuously absent from the “price increase” announcement podium. For the past six months AK Steel has made a total of six price increases – usually during the early portion of the month. Their last increase announcement was on April 8th for $40 per ton. Our sources are telling us very little, if any of that increase is being collected in the spot market at this time.
During a conversation with a large Original Equipment Manufacturer (OEM) they termed the current market as going through a “cooling off period.” They have been in negotiations with their suppliers for long-term contract pricing and by waiting 30 days they have seen two to three cents per pound ($2.00/cwt-$3.00/cwt) come off what was once a six to seven cents per pound ($6.00/cwt-$7.00/cwt) increase over their second quarter “fixed-price” contract.
When asked about their company’s pricing goal the response was, “I’m a manufacturer – I always want to pay less.”
During our HARDI steel buyer’s conference call on Tuesday morning – one buyer told the group after failing to place any mill orders in May they received price concessions for their June orders. Most of the other buyers – including a couple service centers who participate in the call as members of HARDI – indicated they had not yet seen any erosion of prices at their level.
In a conversation with one of the larger national scrap companies in North America this morning, we discussed the transition of the steel market from a “scrap price driven” to a “supply-demand” or more traditional steel market. Orders are being booked with the domestic mills and, as Duferco Farrell discussed with SMU during our visit last week – the order trend line is consistently rising. The question on everyone’s mind is the need for the new capacity which is impacting the market right now.
A pipe and tube supplier told SMU this afternoon there was a lot of “dancing” going on between themselves and the mills right now. “The mills are waiting for the orders [June] to come in. We’re afraid to move too quickly for fear of paying too much. But the mills know we have to place orders and soon….” The buyer told us the key word for them is “stability” – they need to know prices will be consistent and not swing wildly from month to month.
If one thing is for sure at the moment is there is a lot of Global uncertainty out there on many commodities – iron ore spot prices are dropping in China – which we heard from our source in Asia (see article below) and have read in a posting by Platts Steel Markets Daily earlier today. The situation in Europe is of concern and will impact the U.S. steel market in ways most of us don’t think about on a daily basis. Lower Euro means the Turkish scrap buyers may well desert the U.S. market and take their business to Europe. At the same time, European steel may become competitive here (and U.S. steel products will no longer be competitive in Europe).
Buyers will soon need to buy – sellers need to sell – the question is at what price?
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