As we look at the current flat rolled steel market the question we ask ourselves can the domestic mills hold flat rolled steel pricing together long enough to prevent another move lower? Our survey results clearly indicated steel buyers and sellers are concerned about over-supply, seasonal slowdown in demand and the willingness of the domestic steel mills to negotiate prices. One steel buyer, who was quoted in one of our SMU newsletter articles this evening, discussed with SMU their August prices being offered at 4% lower than July. However, to be fair, we spoke late last week with a service center in Michigan who told us a couple of their domestic mills had either drawn a line in the sand or were at least “talking” about higher prices moving forward.

When you see two week (or less) lead times for hot rolled coil and four weeks for coated you know something has to give – either capacity has to be taken out or prices will drop.

One of the steel analysts told me today – “…scrap plus $150 gets you to around $620 hot rolled before someone shuts capacity. That will be one of the mini mills unless scrap prices come down.”

In the most recent SMU Steel Market Survey which we conducted between June 30-July 5th, one of the questions we asked was about mills waiving extras and/or absorbing freight. Specifically we wanted to know if there had been new offers to lower prices by using one (or both) of these methods over the past two weeks. Forty eight percent (48%) responded “yes” they had received new offers at lower prices through the waiving of extras or adjusting freight rates.

So, we look at supply, some seasonal demand slowdown (and a pathetic construction market), mills willing to negotiate (in spite of firm iron ore, coking coal and scrap costs) and, according to our analyst, having room to negotiate are the reasons why our SMU Price Momentum Indicator continues to point to lower prices over the near term – the next 30 days.