I was speaking with a steel buyer earlier today and we were comparing notes regarding the surge in flat rolled steel pricing which began in June 2009 with what is happening at this very moment.

For the ten months prior to June 2009 prices of flat rolled steel products fell. Hot Rolled steel fell from a high of $1170 per ton ($58.50/cwt) down to $380 per ton ($19.00/cwt) during that ten month period. Finally, in June, AK Steel announced a price increase and prices rebounded over the next three months to $570 per ton.

In September 2009 steel prices began eroding once again and dropped down to an average just above $500 per ton (SMU has our average at $515 per ton at this moment which is higher than some of the other indexes out in the market due to the end of year "specials" which we are not including in our numbers).

Last week, AK Steel announced another price increase of $20 per ton on Hot Rolled and $30 per ton for Cold Rolled and Galvanized. Unlike last June when all the domestic mills responded with price increases within 24 hours of the AK announcement - this time the competition has been eerily quiet. No other mill has made a base price announcement - yet - other than the coating revision U.S. Steel is attempting to collect from their customers.

So far this week the other domestic steel mills are very quiet - no quick announcements like June - and SMU doesn't expect any snap decisions. Not all mills are created equal and the weak U.S. economy - especially for industries tied to the construction markets - are seeing more chances for demand destruction than short term growth. We expect the construction related mills will have to fight for 1st Quarter orders.

SMU is seeing some early signs of just that - construction related galvanizing mills either rolling prices from December to January or offering lower base prices for tonnage orders (1,000 tons or more). At the moment we don't have enough information to know if this is a continuation of the declining price trend or simply a few special deals leaking into January.

During June 2009 the market had a surge (or rebirth) of automotive orders with a depleted supply chain due to the General Motors and Chrysler bankruptcy filings. The pop in auto build schedules - hit the integrated mills hard since they had taken capacity off-line and did not have the ability to rebound swiftly. There does not appear to be another catalyst on the demand side like automotive.

Whatever the case - January 2010 - does not appear to be anything like June 2009. It will take a couple more weeks to find out if other mills - especially Nucor, SDI and Severstal - will follow the USS / AK Steel lead.

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