Momentum is Driving Steel Prices Higher
Feb / 13 / 2010 -
Momentum is Driving Steel Prices Higher
Why we believe momentum is what is pushing steel prices higher right now
The real issue is what is the direction (momentum) for steel prices over the next few weeks? As we speak with buyers around the country we are finding even the largest buyers are seeing the sub-$600 per ton (under $30.00/cwt) having a limited life and limited tonnage. The expectation is for the bottom end of hot rolled prices to be at $600 per ton within a week.
Many have written about the lack of demand, building supply and spreads between products which cannot be maintained over time. SMU does not dispute those facts – what we haven’t seen yet is a collapse in pricing by a domestic mill (selling lower today than they did yesterday) or the wholesale raiding of another mill’s core customers. Big Mo’ seems to keep kicking the ball higher with prices falling along closely behind.
Galvanized continues to be the weakest product. Most mills are now sold out or have closed out March galvanized. The $35.00/cwt base price numbers no longer exist in the spot market (based on our sources) and the lower end of the range is quickly forming at $36.00/cwt and higher with a push to reach $37.00/cwt + extras.
One conversion mill contact advised SMU that current full hard cold rolled (FHCR) numbers are ensuring the lower end of the range for galvanized will be $36.00/cwt on base gauges. We are being told conversion mills are not chasing numbers below $36.00/cwt at this point in the month.
Cold continues to be a strong product with a strong push to have $37.00/cwt as the low end of the range. We are seeing offers around $36.50/cwt and with tons someone might be able to do a little better – but like the other products mentioned above there doesn’t seem to be a big move by the domestic mills to discount (yet).
“We have to be cautious”
One large corporate buyer told SMU on Thursday it is important to review this market on a day to day basis. This source is a large supplier to the automotive business and they used automotive as an example.
Our sources are telling us production schedules are strong and even Toyota and their sub-contractors are taking their steel. Steel suppliers work on 16-week production lead time schedule on all products (including HR) and we are getting close to the traditional “seasonal slowdown” which occurs during June and July in most “normal” years. It is not yet known if 2010 will be a normal year for the auto companies. But their steel suppliers are concerned and watching very closely.
Real demand is still in question. As one service center executive put it to SMU, “I go back to jobs “…ultimately jobs will determine if demand is real and can grow beyond a certain point.
The Quality issue at Toyota is an on-going concern. Two Toyota suppliers have told SMU the steel shipments continue and new orders are being placed. There is a concern this may not continue for too much longer – especially as we head toward the typical seasonal slowdown – coupled with lost sales due to quality concerns by the consumer.
There is a fear the automotive pipeline will get “chalk full” as it was in the past. If that happens there is the potential to have a “shadow” of one year ago – as the excess inventory needs to be worked off according to one auto supplier.
As we have mentioned in the past – the big mills – the integrated mills – continue to have spot shortages but are producing and shipping (to the auto industry) better than a few months ago.
Lead times appear to be moving out slightly over the past couple weeks. But, as our automotive supplier told us, “we have to be cautious” and watch lead times, scrap prices and inventories to see where we will be a month or two from now.
A Note about Blast Furnace Restarts
A steel analyst spoke with ArcelorMittal regarding the reasoning behind bringing back capacity. AMUSA told the analyst the mill is running “full out” and they still are unable to meet customer orders. This is in-line with what we are hearing from AMUSA customers in various industries. AMUSA is not taking into consideration other capacity which is coming back online at the same time from other suppliers. The comment the analyst made to SMU was, “Is everybody chasing the same pretty girl?”
Buyers are afraid in a couple of months (as it will take time to get the furnaces and Severstal Warren plant back up and running) before the industry may hear a collective “whoops!”
Note about scrap
It is in the best interest of the scrap dealers to start “talking up” scrap prices for March now – in advance of March negotiations. Weather will be an issue for collections in parts of the United States – other areas are not being affected. The dealer rumor mill is for prices to move higher by as much as $100 per long ton. We will have to wait and see if their wishes become reality over time.
