SMU Price Momentum Indicator Moved to Lower from Neutral
Written by: John Packard
Earlier today Steel Market Update adjusted our SMU Price Momentum Indicator from “Neutral” to “Lower.” Based on information regarding lead times, pricing and negotiations between steel mills and their customers is leading us to believe the chances of prices moving higher from here are minimal and the drift in pricing will only be for lower prices over the next 30 to 60 days.
We continue to hear about mill customers placing orders and then receiving them early. One mill customer advised us of placing HR with a domestic mill last week and then receiving a portion of the material already this week (some slabs existed in inventory so it did not need to be melted – still not a good sign for the backlog on that mills hot strip mill).
We traded emails with a domestic mill this week who told us, “We’re hanging in there but I’m getting an increasingly bad vibe, especially in the last week. The automotive supply chain issues with the CDT plant explosion I believe already have the mills looking for 2nd quarter business in anticipation of a (temporary) auto production slowdown.” The CDT plant he is referring is located in Germany and at the end of March suffered a fire which knocked out their ability to produce CDT and PA-12 (nylon 12) which is a resin used in the manufacture of fuel and brake lines.
A service center executive told us earlier today, “I can buy steel a hell of a lot cheaper today than what I could do one week ago.” This executive then went on to discuss the situation at a couple of their steel suppliers which he suggested were “struggling.”
A Midwest service center told us earlier this week, “We are still seeing mills quoting at $680 base for HR, but quickly negotiating down to about $650 or some instances lower. Lead times are quoted at four weeks but orders placed during March for April delivery have come in much sooner and we are being told if we need it quick, it can be produced within two weeks. Our order book is slower than March, but steadier than anticipated. The constant conflict between ‘published’ pricing and the real negotiated final pricing is making it difficult to be price competitive.”
Below is a graph of our SMU Price Momentum Indicator and hot rolled pricing since January 2011. As you can see the last few months Momentum has been difficult to peg as index prices have been in the $680-$690 range. The domestic mills have called for prices to continue to be range bound or to firm further depending on what mill conference call you are listening to. With coated lead times out into mid-late May time frame two-thirds of the quarter is already done. As we Look out at the balance of May and June we are not optimistic that the movement of pricing can be contained to sideways only and will more than likely move lower over the next 30 days or longer.