Neutral – we know buyers and small business owners hate it when Steel Market Update moves our SMU Price Momentum to Neutral. It’s been compared to having a first date and at the end of the date saying you had a “nice” time. Not very descriptive and certainly doesn’t raise any passion.

That’s the whole point behind the term Neutral. We want the market to work out its challenges and let those making the selling and buying decisions determine the ultimate outcome.

Yesterday, we spoke with two separate steel mill executives, who had totally differing views on the marketplace. One felt the “bottom has been taken out of the market.” In other words, prices should not fall from here. “People are not asking for lower prices,” we were told. This executive went on to say their order book was “good” and then qualified that statement by remarking the order flow is, “the same as they have been. The size of the average order is still low but the number of orders is still high.”

A second steel mill told us their order book was, “pretty much the same” and then they qualified their statement by saying, “We are not very busy. Volume is OK but it is slower than it was.” When asked if they had seen the bottom to market prices they commented, “I think we are close.” Their worry, however, is “no one has a backlog.” In other words, their fear is the lack of a strong order book at a number of the steel mills will result in price slippage if demand does not pick up.

After looking at our SMU price ranges and indexes, we did not detect any large adjustments in pricing – in either direction – between Wednesday of last week and today.

We did speak to a number of end users who reported business conditions as being better than originally forecast. We heard of strength in automotive, truck bodies, railcars, oil & gas, specialty fabrication and some isolated pockets of construction.

Weakness existed in most residential, commercial construction, public construction, metal furniture and related markets. Agriculture was a question mark in some areas due to the wet spring, flooding and tornado damage.

Buyers continue to be worried about the amount of capacity coming online although one buyer pointed out the issues RG Steel was having with their “L” furnace is ending up being a “blessing in disguise” as it has prevented the mill from flooding the market with cheap steel.

A second buyer in the Southeast echoed the sentiments regarding RG Steel and they pointed out they could not be a large buyer until they were certain the mill could deliver product on a timely basis.

Many are concerned about July and early August lead times (domestic mills are mostly in early to mid July lead times with some late June hot rolled still available).

A few buyers spoke of the possibility we could have a period of time whereby there is stability in pricing – which they feel would not be a bad thing. “When was the last time prices were stable,” one buyer asked me earlier today. He then quoted from earlier issues of SMU where one of our sources told us, “Prices are never stable. They are either going up, or they are going down.”

At the moment, SMU sees prices as settling in and we will have to wait and see whether the next direction is a move higher (scrap prices are up in June) or lower (more capacity is coming online). So, our SMU Price Momentum remains at “Neutral” for yet another week.