Earlier today I had a conversation with a service center executive I have known for a good portion of my personal steel career. We were discussing the flat rolled steel market and the specific pricing policies of one mill in particular (to remain nameless). What I found interesting, is the discussion turned to the pattern used by domestic steel mills which ends up breaking down flat rolled steel prices causing the market to drift lower.

The pattern, or cycle, goes something like this:

One or more domestic mills make a pricing announcement.

Everyone “gets religion” and puts out new higher prices. The mills tout the new numbers to their customers.

The result is buyers move to those mills who have not announced or who are willing to negotiate. The mills touting the new numbers order books begin to suffer.

Usually one or more of the mills who had announced price moves begin undercutting the existing price levels in order to fill their order books. The mills who move first are generally well known within the industry as they are committed to keep their equipment (furnaces, etc.) running full.

The purchasing managers keep the mill sales people for the rest of the steel industry informed as to what is being negotiated. As the numbers become “public” what gets lost in translation are the details (tonnage requirements, month of production, product requirements and restrictions). This creates angst amongst the other mills that are then forced to compete with lower numbers or the perception of lower numbers.

Two areas of cost have been in play for some time as mill jockey with one another and look to sell outside of their normal geographical boundaries: mill extras and freight. We have seen a resurgence of “freight equalization” or the absorption of excess freight charges one mill incurs vs. a mill in closer proximity to the customer. We have also seen mills meeting another mill’s extras or waiving extras completely. Both of these are done in order to lower selling prices without officially touching the base price.

We have been watching the drifting of hot rolled prices since the price announcements were made by Severstal, NLMK Group (Duferco Farrell/NLMK Indiana/Sharon Coatings), AK Steel and Nucor. Some mills have been better than others at attempting to hold the bottom.

Just about every mill is now quoting July lead times for new hot rolled orders. The question now is can those mills who have been at the very low end for June take their numbers up for July or will they be forced to roll back prices as their order books suffer?

This article was originally published in our Steel Market Update newsletter. For more information about free trials or membership to our newsletter and website click on the links below.