Steel Market Update (SMU) Steel Buyers Sentiment

SMU began measuring the percentage of optimism or pessimism within those actively buying or selling flat rolled steel beginning with our market surveys in early November 2008.  The SMU Buyers Sentiment percentage is determined approximately twice per month through the responses we receive from the manufacturers and service centers we invite to participate.



We began the year coming out of 2008 (after the financial collapse in September 2008) with the vast majority of those involved in the flat rolled steel business expressing pessimism about their company’s position in the marketplace.  This pessimistic sentiment bottomed in early March when it registered -85.4% and from that point sentiment improved.  Sentiment slowly improved and broke through the -50% level in early June – just as the domestic steel mills reversed course and began raising prices.
 
As you can see from the chart above sentiment has remained above -50% and reached the best (least negative) reading the week of September 29th when it registered -28.0%.  According to SMU weekly Hot Roll index data prices peaked the week of September 22nd at $570 per ton (average) and proceeded to decline until the week of December 1st when our HR index reached $510 per ton and have subsequently been rising ever since. 

This year is the first full year for the Steel Buyers Sentiment Meter and we were not quite sure what the results were going to show.  SMU thought with a large market sample we should obtain a good flavor for the marketplace and market trends (momentum).  Over time, we will let the data speak for itself but there appear to be interesting comparisons which can be made between Buyers Sentiment and price movements.

SMU has another Buyers Sentiment reading which is our Future Buyers Sentiment were we measure what our steel buyers and sellers think about their company’s prospects three to six months in the future.  Here is a look at the Futures graph and, as you can see the highest optimistic reading we have was obtained in our last survey on December 16th when the reading measured +25%. 

You can find the current meter reading on the Home Page of our website.  We maintain the charts and graphs on both current Buyers Sentiment and Future Buyers Sentiment behind the Steel News tab (password protected) portion of our website.


 
Steel Prices

January 2009 began with the SMU Hot Rolled Index in a very tight range $500-$520 per ton.  This was down from the all time peak for hot rolled pricing which was achieved in July 2008 when the SMU average index recorded $1070 per ton ($53.50/cwt).  Beginning in September (economic financial collapse) 2008 HR dropped an average of $100 per ton per month with January 2009 being the first month to show a slowdown in the pace of decline.  Between December 2008 and January 2009 our index average dropped by a meager $13 per ton.

Over the next five months (January-May) hot rolled dropped a total of $112 per ton and reached their nadir the week of June 2nd at $380 per ton.  June 2nd happened to be the week AK Steel reversed the trend by announcing (and sticking to it) a price increase – quickly supported and improved upon (kicked even higher) by the rest of the steel industry.


 
The industry kick-starting prices was automotive which in June and July 2009 was coming back from the dead – or at least General Motors and Chrysler were coming out of Chapter 11 protection and restarting their production facilities.  Prior to, and during the Chapter 11 process, the automotive industry had anemic production and the supply chain liquidated as much sellable inventory as possible.  Once GM and Chrysler were back they needed to begin production and little material was available within their existing supply chain.  At that time many of the integrated steel mills had idled facilities due to the anemic automotive (appliance, etc.) production rates coupled with the destocking process at all levels of the flat rolled steel industry but especially at the service centers.

In August and September 2009 the U.S. Government added “Cash for Clunkers” to the mix which exacerbated the steel inventory issue from which a couple of the integrated mills still have not fully recovered.

However, “real demand” as Dan DiMicco likes to call it, has not dramatically improved since May 2009.  What appears to have happened are the service centers and many manufacturing companies reached a point whereby they could no longer continue destocking and they needed to maintain their inventory levels – which means they had to begin buying steel.

The customers had to buy from the domestic steel industry because the international mills were able to ship their products to other countries without exposing themselves to the deteriorating North American markets as well as the protectionism attitude enveloping the country with our “Buy America” restrictions and the dumping suits being brought by the domestic steel industry.  The only competition within the North American steel industry was the individual mills and their desire to maintain “market share”.

Hot rolled (and other flat rolled steels) prices rose from the first week of June until the third week of September when the industry experienced its first minor setback or “ripple” as seasonal demand fell which created an short opportunity for those in tune with the market to purchase steel at negotiated bargains and the lower end of the hot roll range once again fell below $500 per ton.
 
Those who did not take advantage of the end of the year “specials” (as we liked to call them) by Thanksgiving (third week in November) were out of luck as lead times reached into January and prices once again firmed.
 
Since the SMU indexes are forward looking indexes based on purchases being made for future delivery we ended the year 2009 with our last Hot Rolled index at $550 per ton slightly higher than the $510 we began with in January 2009.

Cold Rolled, Galvanized and Galvalume each had their own peak and valleys and acted and reacted to market factors differently from hot rolled and from each other.  When automotive came back in July the product taking the immediate hit was galvanized where lead times surged. 

Tin plate has been a very strong product since the financial crisis began in September as consumers hunkered down and tried to save money.  The strength of tin plate has affected light gauge cold rolled production and thus galvanized and Galvalume production.
 
Galvalume had its own interesting surge between August and October due to strength in Tin Plate, the integrated producers being behind on automotive galvanized and a strong order book for light gauge Galvalume.

Also affecting Galvanized and Galvalume prices this past year (and moving into 2010) have been zinc and aluminum prices – zinc in particular which has gone from approximately $.50 per pound at the beginning 2009 and ended the year trading in the spot market at $1.1473 per pound.  The December closing price is above the AK Steel threshold of $1.10 per pound and SMU expects a new round of mill coating extra changes if zinc continues to move higher in 2010 (although the rise of the dollar may hold zinc prices back – we shall see).  The current trend line on zinc does not look promising to those who are holding out for lower zinc extras in the near future.


 
Hot rolled has actually struggled for most of 2009 and starts 2010 as the weakest and most vulnerable product.

For more information about Cold Rolled, Galvanized and Galvalume prices over the past year we recommend going online and taking a look in the Steel Prices section of our website – www.steelmarketupdate.com (password protected).