Where will Flat Rolled Steel Prices go from Here?
Virtually every domestic steel mill announced price increases this past week. Leading the charge was U.S. Steel which put out a written memo to their General Manager of Sales which was conveniently leaked to the industry as a whole. In the memo, RY Kopf, General Manager North American Flat-rolled Marketing told the GM’s “global raw material costs…continue to escalate, spot transaction prices have deteriorated…This dynamic has created an unsustainable condition.” He then went on to announce a $60 per ton ($3.00/cwt) price increase.
Within a few hours AK Steel – in as few words as possible – put out a press release announcing a $60 per ton price increase. “West Chester, OH, August 10, 2011—AK Steel (NYSE: AKS) said today that it will increase current spot market base prices for all carbon flat-rolled steel products by $60 per ton, effective immediately with new orders.” (Source: AK Steel press release)
Shortly thereafter came NLMK Indiana/Pennsylvania and Sharon Coatings with a (surprise…) $60 per ton price increase.
As the week progressed we got to see increases from coast-to-coast and (surprise…) they were all $60 per ton. More than a couple used the word “unsustainable” in their increase announcement (see RG Steel announcement in the Sunday evening issue of Steel Market Update newsletter).
More than one steel buyer has sent emails to SMU pointing out the uniformity in the price increase announcements.
Steel Market Update (SMU) and other steel industry related periodicals and indexes have been reporting a wide range of pricing having been offered into the marketplace prior to the increase announcements. When taking freight and the practice of “waiving” extras on certain products, hot rolled pricing had fallen to (or slightly below) $600 per ton for those able to provide large quantities of tons while smaller buyers were creeping down to the low $600’s. A few companies were paying in the mid-to –high $600’s.
So, the question becomes were will prices shake out from here and will any (or all) of these price increase announcements stick – especially with very short lead times available on virtually all products.
SMU heard of verbal quotes being tossed out in the Midwest late last week which ranged from a low of $660 to a high of $720 per ton on hot rolled.
One steel analyst wrote in a note to his clients about the U.S. Steel price increase: “The domestic steel market seems to have stabilized since the $60 per ton price increase on hot rolled coils was announced by U.S. Steel and AK Steel a few days ago, but we have not heard of anyone paying the increase. Of interest to us is the letter sent by Robert Kopf which appears to directly refute the second paragraph of U.S. Steel’s Outlook section in the newly filed 10Q, which states that they do not expect North American raw material costs to increase in the third quarter. Kopf directly blamed their need for higher prices on increasing raw material costs. The company’s 10Q blamed their likely lower third quarter North American flat rolled segment results on lower prices due to increased supplies from the reopened and new plants, not raw material cost increases.”
Another steel analyst told SMU late last week they understood from their sources the USS price increase announcement was due to an improving demand situation. Other domestic mills are apparently not enjoying the same success as their order books languish at one and two week lead times for hot rolled and are in mid-September on coated.
One service center executive told SMU late last week they are able to get steel produced within “days” of placing an order with their suppliers. The questions being asked, at least prior to the announcements, were: when do you need the steel and at what price?
The next two weeks will be critical to see if the mills are able to maintain and grow their order books at the new price levels or, will the questions continue to be when do you need the steel and at what price?
SMU will begin a new steel market survey on Monday morning and attempt to answer some of the nagging questions. Stay tuned to our newsletter and blog for more details as the week progresses