Earlier this month the members of United Steel Workers (USW) Local 2724 voted to strike August 1, 2010 should they not reach a collective agreement with Essar Steel Algoma Read more ...

Steel Market Update asked one of our contributing writers, Peter Brebach, CEO of Iron Angels of Colorado, to speak to the steel market and the trend he believes is developing in the market. Steel Market Update, at this moment, continues to forecast a declining trend/momentum in the flat rolled steel market although we do expect the declines to be more modest from this point Read more ...

United States Steel (USS) reporting a net loss of $25 million, or $.17 per diluted share of which $96 million or $.62 per diluted share was foreign currency remeasurement losses on intercompany loans. Net sales were $4.7 billion on shipments of 5.9 million tons which represented an increase of 9% from 1st Quarter 2010 Read more ...

Steel Market Update is pleased to announce Mr. Ricardo Bernardes; California Steel Industries (CSI) Executive Vice President of Commercial will be a participant in our first steel conference to be held in Las Vegas on October 19th. We believe the addition of Mr. Bernardes and California Steel will help us provide a more balance look at the steel industry from coast to coast. California Steel is very much a player in the construction markets west of the Rockies. Although, SMU believes many may be surprised at the geographical reach CSI has here in North America Read more ...

Metals USA, one of the larger flat rolled steel service center groups in North America, announced their second quarter earnings for 2010 on Tuesday of this week. The company recorded operating income during the quarter of $17.4 million compared to $12.7 million in the first quarter 2010.

The company’s colorful CEO, C. Lourenco Goncalves, has shown in the past he has a way with words and tends to speak directly to issues. The conference call with analysts was once again filled with “color” about the steel business and economy. SMU will try to go past the “catch phrases” and presented a more complete picture of the call and the various flat rolled pricing, inventory and market comments made by the company (mostly Mr. Goncalves) during

The following information is being taken directly from the transcript of the Metals USA conference call and we have attempted to be as complete as possible on any specific subject they addressed. We are not reproducing the entire transcript.

“…same volume of business working out of fewer tons of inventory”

One of the first items which hit our eye during the opening remarks by Mr. Goncalves was a reference to the company’s ability to “…do the same volume of business working out of fewer tons of inventory.” SMU believes this is not isolated to Metals USA but perhaps one of the new realities of the service center business models going forward. The old 3 month standard inventory levels and four or less turns per year is outdated and, as was proven in late 2008 through the first half 2009, potentially dangerous.

Mr. Gonsalves puts his own twist to the tale with the following:

“Let me now comment on market conditions. Given the current environment, I believe its most instructive to look at sequential results to assess progress. Metals USA shipments increased 9% in the second quarter 2010, over first quarter 2010 which we expected to be in line with the overall service center industry. We remain convinced that 2010 is a transition year and that we will return to more normalized environment in 2011. We are experiencing decent and growing demand in almost all end-markets with exception of non-residential construction. Non-risk is not out, but it certainly remains down and will continue to be for the foreseeable future. However, other end markets have been performing well and should continue to improve in Q3 and beyond.

We have experienced year-over-year shipment growth of almost 20%. In any other year, 20% year-over-year growth would be great. But I have to admit that at the beginning of the year, I was expecting year-over-year growth to reach into the mid 20s. What’s frustrating is the fact that the industrial economy is doing better than perceived by the media and could have been supporting 25 plus percent of steel consumption growth. Unfortunately, several issues are acting as barriers to higher steel consumption in the U.S.

First, MUSA have not given steel consumers the confidence that they will keep prices stable. Let’s face it. If a steel buyer thinks the price is going to be lower tomorrow, he or she will not buy today. Complicating this effect is the behavior of most service centers. With an inventory position exposed to price drops, service center will keep inventories as low as possible to mitigate the impact of adverse pricing trends. Metal USA is no exception on that.

Second, I think the average business of others operating mentality has been seriously affected by the economic crisis of 2009. By and large, end users no longer trust their own perceptions and are overly cautious to avoid the conditions they found themselves in 12 to 18 months ago. One very curious behavior that I have noted repeatedly is that business managers no longer trust their own order book and continue to buy fewer tons than they would buy two or three years ago for the same level of orders on hand.

Along similar lines, the average business manager has become pessimistic by default, and is reacting too severely to global news without determining if the news will really affect his or her business. In fact, they just assume it will. For instance, does the credit problem with Greece really reach manufacturing [inaudible] America? I believe that people have lost their ability to assess what conditions are really influence their businesses and what are not. Consequently, they overreact to all inputs…”

“…cost push will be a key driver of higher prices for the foreseeable future”

“Turning my comments toward pricing. I will continue to be an outspoken proponent that cost push will be a key driver of higher prices for the foreseeable future. Effective July 1, 2010, world prices for iron ore increased 25%. This view forces one of two possible outcomes. Finished products prices will either be increased to recoup costs or mills, we’ve experienced compressed margins. There is no alternative.

For much of the first half of 2010, prices have trended higher for this reason. Recently, prices have become unstable. Some may interpret this as an indication that a peak has occurred. I am less inclined to think like that. Too many pundits focus on installed capacity utilization as a price driver. Historically, I think that was a reasonable assumption. However in this consolidated environment, installed capacity utilization is less relevant. What’s more important now is the order book in front of furnaces that are operating. Sufficiently sized order books allow furnaces to operate in an efficient manner and optimize conversion costs. We have seen mills raise prices with low installed capacity utilization, but with good order books on hand.”

Q – Bruce Klein: Two things just on the working capital. I guess what do you attribute, I know it rose a lot less, but typical given the shipments which is great news. What do you attribute that to I guess and how sustainable is it? And secondly prices has soften some, they are still softening in your view and when do you think it would sort of bottom out?

A – Lourenco Goncalves: Bruce, let me start with pricing. During Q2, prices really softened more than we would like to see and especially at the end of the quarter. And that was motivated by, in my opinion, by the inability of the markets to realize that the international prices will receive a very strong pressure during Q3, sometime during Q3. I don’t know exactly when the new iron ore prices will kick in and will be really translated into higher costs for the integrated mills. But you make no mistake, POSCO, Nippon Steel, Thyssenkrupp, Corus, ArcelorMittal all these guys will pay higher price for our work and that will translate in higher costs, same thing is happening with coking coal.

So if the mills will continue to allow prices to deteriorate or even if they do not allow price to go up, what we are going to see will be a repeat of the dire straits that the industry was in 10 years ago. I don’t believe that the mills will allow that to happen. And we, as service centers, we have much more protection against this type of things than the mills. For them its costs, best costs or not best costs, profit or loss. In our case, by playing with the inventories and making the inventories is more than enough to mitigate the impact on pricing we can survive. So we may not deliver great profit but we still be profitable. So it’s a decision that the mills we have to make, how they’re going to treat their cost pressure because the cost pressure is real. What was the first question?

Acquisitions

A – Lourenco Goncalves: We continue to pursue acquisitions. Everything that I said during the road show, we are doing everything that we committed with we are performing. I told the potential investors during the road show that we would do one or two acquisitions this year. We closed the first one before midyear. It looks like we have been public for a long time, but I have just finished the first quarter as a public company. So one thing that investors need to understand is that things take time. So we will continue to pursue acquisitions, it’s a good time to buy. The business will not go away for good in the United States; it’s just a shaky time, so we’ll continue to take advantage.

Third Quarter Improvements

Q – Brett Levy: And then the last one is just sort of a bet [ph] for a little bit more granularity. It looks as if steel price is kind of across the board, kind of coming down from June to July to August, volumes also to some extent, what is moving up, let’s say, third quarter look like it might be stronger?

A – Robert McPherson: Volume.

Q – Brett Levy: Volume.

A – Robert McPherson: Volume.

A – Lourenco Goncalves: We are at this point enjoying better volumes than we were during the latter part of the second quarter. So volumes are picking up even in a month like July that is normally not a month in which we see volumes picking up.

Q – Brett Levy: And is there a particular area where the volumes are stronger, particularly stronger in, I don’t know shape or something like that?

A – Lourenco Goncalves: That’s too early in the quarter to give you this type of detailed granularity, if you will. So we’re seeing an overall trend of volumes increasing in then though we’ll stay at this for the time being, Brett.

Selling Prices

Q: Hi. This is Adam Rahn [ph] speaking on behalf of Sal Tharani. We had a quick question, hot rolled prices going up 16% quarter-over-quarter from the first to the second quarter. And we have average selling price few guys up 6%. We understand that there is a lag there, but we were wondering if you could provide some color as to whether there is going to be a lag if prices go down in the third quarter?

A – Lourenco Goncalves: No. Next question.

Domestic Mills are the Problem “…right here in America, right now”

Q – Phil Gibbs: Hey guys. I just had a quick question on the gross margins in the second quarter; I think we’re expecting a bit more. Was that more competitive or was that mix and how are the margins progressing through the quarter, on a month-on-month if you could give any color on that?

A – Lourenco Goncalves: Phil, you are right and we were expecting a higher gross margins as well. The problem is that in an environment in which the mills only talk prices to talk prices down in which that we are not seeing enough business to support everybody’s ability to make a boatload of money, we have to be competitive. So in Q2 we have to sacrifice gross margins in order to continue to perform well in terms of volume and we did just that. We would love to have higher gross margins, but without mill support that is next to impossible. The good news is that the mills are putting themselves in a position that if they continue to act the way they’re acting, a few of them will go out of business. We have seen that before, I don’t know how long we’ll follow this business, but I have been in this business long enough to know that if you behave like LTV, you are LTV. If you behave like [inaudible], you are [inaudible], no matter if you have a new name, no matter if you have a new owner, if you’re back to the practices of the past you are [inaudible] on the water. So the mills need to change or they will be gone, and then it’s a new start, it’s a new beginning. Everybody will be reborn and that’s great, that’s fantastic.

Q – Phil Gibbs: And Lourenco, we’ve seen supply of carbon still on a weekly basis track around 17, a little higher than that, 1.7 million tons, you think that needs to come in a little bit as we move into the second half of the year to stabilize prices to get them moving in the right direction, should we see some supply come off?

A – Lourenco Goncalves: Maybe, maybe. There are some mills in the United States that should be shut down long ago, but people keep believing in stories like when we saw old mills that were absolutely outdated combined with service centers, then being sold to a mill and then the mill thought that they had the best thing in the world and all of a sudden, they’d sell the service centers and keep the mills. So the old mills are in still active. So we need to learn with the past, instead of continue to make the same mistake, just with the new cover. It doesn’t really fly. So yeah, we need and keep the mills. So the old mills are in still active. So we need to learn with the past, instead of continue to make the same mistake, just with the new cover. It doesn’t really fly. So yeah, we need to some capacity to go out here. But we are more concerned about calling Chinese CapEx to be shut down as if it would change a bit in the United States. But we keep, especially the mills continue to really push China to reduce their installed capacity. Why they’re going to reduce their installed capacity right here in America where we have a clear problem of over capacity? Because it’s much easier to blame the Chinese because they know that that will take their tension out of where the problems are. The problem is right here in America. We have more capacity in America than we need, right here, right now.

It’s time for the mills to stop calling China the problem. They are the problem right here in America, right now. to some capacity to go out here. But we are more concerned about calling Chinese CapEx to be shut down as if it would change a bit in the United States. But we keep, especially the mills continue to really push China to reduce their installed capacity. Why they’re going to reduce their installed capacity right here in America where we have a clear problem of over capacity? Because it’s much easier to blame the Chinese because they know that that will take their tension out of where the problems are. The problem is right here in America. We have more capacity in America than we need, right here, right now. It’s time for the mills to stop calling China the problem. They are the problem right here in America, right now.

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Nucor Corporation reported consolidated net earnings of $91.0 million, or $.29 per diluted share, for the second quarter 2010 on sales of $4.20 billion. Nucor earned almost two-thirds less during the first quarter when they reported earnings of $31.0 million when they sold $3.65 billion Read more ...

Essar Steel Algoma announced late on Wednesday they have reached a tentative agreement with one of their two unions – USW Local 2251. USW Local 2251 represents the hourly workers at the mill and an agreement was believed inevitable after the union leaders did not ask for a strike authorization vote Read more ...

Steel Dynamics (SDI) announced earnings and discussed their business in a conference call with analysts on Tuesday of this week. What caught the attention of the press was "part" of one of Keith Busse statements regarding flat rolled steel pricing Read more ...

The Metal Service Center Institute (MSCI) reported domestic service center shipment and inventory data for June this morning. The key data being flat rolled steel inventories increased by 377,200 tons and the 4,497,500 tons are the most seen since February 2009. Flat rolled inventories have been steadily growing since August 2009 (10 straight months) Read more ...

Reports last week confirmed that Magnitogorsk Iron & Steel Works (MMK) will not be proceeding with their 2007 plans to build a steel mill in Ohio Read more ...

Steel Dynamics, Inc. (SDI) announced earnings of $49 million for the second quarter 2010 ($.22 per diluted share) which is $16 million lower than 1Q 2010 earnings but, an improvement over 2Q earnings in 2009 when the company had a loss of $16 million. The company shipped 1.3 million tons of steel products during the quarter of which 815,000 tons were flat rolled. Flat rolled accounted for 64 percent of second quarter steel operations shipments Read more ...

SMU found an interesting article in the most recent American Institute for International Steel (AIIS) newsletter which came out today. In this month’s issue AIIS takes a look at the results of the Chinese dumping suit against AK Steel and Allegheny Ludlum who were accused of dumping grain-oriented electrical steel. What should be of interest to our readers is the existences of U.S. subsidies which we take for granted but are considered by the international community as “protectionist Read more ...

On Wednesday morning there was an explosion at the U.S. Steel Clairton Coke Plant. The explosion shut down the B Battery coke ovens. Steel Market Update has remained in contact with U.S. Steel in order to get the most up-to-date information for our members and those who visit our SMU website Read more ...

On Wednesday morning there was an explosion at the “B” Battery at the U.S. Steel Clairton coke plant. The explosion injured twenty workers who were on site at the time Read more ...

There has been an explosion at the “B” Battery at the U.S. Steel Clairton coke plant. The explosion has injured a number of workers who were on site at the time. The exact number is not yet known and there are various industry reports quoting specifics which vary from one news organization to the next Read more ...

Earlier today (Tuesday) Essar Steel Algoma put out a post on the steel mill's blog which clearly identified a standoff in the negotiations with one of their unions: Local 2724. This evening the union struck back with the following press release Read more ...

The U.S. Steel Gary Works had an accident last week which has resulted in the idling of two of the companies four operating furnaces at the facility Read more ...

Essar Steel Algoma posted a detailed analysis of the company's negotiating position with the two unions whose contracts expire at the end of this month. The Canadian steel mill has two unions to deal with - one hourly workers (2251) and one supervisors and line management (2724) Read more ...

Compounding steel buyers consternation is yet another drop in scrap prices. This is not unexpected and was anticipated by the scrap dealers. However, as many who attended Steel Success Strategies a couple of weeks ago know, there has been a debate within the scrap community (and those of us who cover scrap prices) as to where prices would ultimately settle and how they will impact flat rolled steel prices Read more ...

Market sources have told Steel Market Update that the Severstal Sparrows Point facility has not yet shut down their blast furnace as they have been unable to produce enough slabs to accommodate their Tin Plate customers. Our sources are advising us the blast furnace will be taken down later in the month of July. At this time the projected date is July 25th Read more ...

The Associated General Contractors of America provided an analysis of construction employment data which shows construction unemployment is at 20.1%. Construction is one of the largest markets for flat rolled steel Read more ...

The American Iron & Steel Institute (AISI) reported final raw steel production and capacity utilization rates for the month of May 2010 Read more ...

John Anton, one of the finest forecasters SMU has witnessed in the steel industry has agreed to participate in our first conference on October 19, 2010. SMU last saw Mr. Anton speak to a SBB gathering in March of this year. Those of you who were members at the time may recall it was Mr. Anton who projected steel prices would drop dramatically beginning in May 2010 Read more ...

Severstal North America (NA) has been the latest mill to adjust (lower) their galvanized coating extras. The extras were “officially” revised on June 23, 2010 and can be found on their website. The new extras posted were for galvanized only. The Galvalume extras continue to be shown at the old numbers Read more ...

The steel market volatility has been growing over the past few years. Understanding steel price risk and how to hedge against steel pricing volatility is a growing concern in the North American steel industry Read more ...

Steel scrap prices on the east coast USA will be impacted by the recent purchase of scrap by the Turkish steel mills. Ultimately, flat rolled steel prices will be impacted as well Read more ...

Steel Market Update spent the last three days in New York City at the Steel Success Strategies conference. Below is a report we published in our newsletter earlier this week regarding World Steel Dynamics view of the steel world Read more ...

Steel Market Update spoke with ThyssenKrupp Steel USA earlier this week regarding when the new U.S. mill would begin rolling their first hot rolled coils Read more ...

We just completed speaking with the Association of Steel Distributors (ASD) at their regional meeting in Chicago. You can now view a copy of our Power Point presentation on our website www.steelmarketupdate.com. Read more ...

The federal government has the right to seek penalties against United States Steel Corp., the Federal Court of Canada has ruled Read more ...

Severstal NA recently announced they would be idling the "L" blast furnace at their Sparrows Point operation. The plan is to idle the hot end of the mill but the finishing end will continue to produce hot rolled, cold rolled, galvanized, Galvalume and Tin Mill products Read more ...

The Nikkei Business Daily (Japan) has reported BHP Billiton and Rio Tinto have notified Japanese steelmakers of their intention to raise iron ore prices during the July through September quarter (3rd Quarter) approximately 23% Read more ...

The lack of scrap buying out of Turkey, China and Korea has impacted domestic scrap prices in early May as prices are reported to be stable in the Midwest to down as much as $30 per long ton on the coast according to Steel Market Update scrap sources Read more ...

The Severstal NA Sparrows Point mill located outside of Baltimore, Maryland will be idling the steelmaking facilities at the plant (hot end) beginning late this month according to Elizabeth Kovach, spokesperson for Severstal NA in an email to Steel Market Update Read more ...

Flat rolled steel prices tend to follow scrap prices. Steel Market Update has noted steel prices as moving lower over the past week and now early indications are for scrap prices to move lower to sideways depending on where you are in the U.S. Read more ...

Steel Market Update is currently conducting our bi-monthly steel market survey so we may better understand both flat rolled steel prices as well as any changes in trends and momentum. One item which will be of importance to hot rolled, cold rolled, galvanized and Galvalume prices this week is scrap prices Read more ...

Essar Steel Algoma (Canada) has notified their iron pellet supplier Cliffs Natural Resources of their intention to take a pricing dispute to arbitration. The steel mill advised Steel Market Update (SMU) this action will allow for Cliffs to continue to send iron ore to Algoma so there is no interruption in their steel making process Read more ...

TOKYO (MarketWatch) -- Some Japanese steel makers have agreed to a further hike in the price of coking coal for the July-September quarter, people familiar with the negotiations said Tuesday, which is likely to increase cost pressures for automakers and other major steel buyers Read more ...

Nucor is the first mill to react to the dropping zinc prices by advising their customers late on Friday of their intention to revise their galvanized coating weight extras. In a letter from the various mill sales and marketing managers the mill told their customers their new coating extras will be in effect on all orders acknowledged to ship the week ending July 10, 2010 Read more ...

Early indications from the Chicago Purchasing Managers Index (PMI) for the steel business are mixed. The PMI continues to be above 50.0 but some of the key data points are moving in the wrong direction Read more ...

So far this week it has been quiet. All is quiet on the steel front as prices have either settled in at their new levels or, in the cases of cold rolled, may have actually tightened up a pinch. The scrap market has been quiet as well as we wait for mill buyers to determine their needs and make their next round of purchases which should happen next week Read more ...

Total steel imports (all products) were flat for the month of April 2010 compared to the previous month, according to preliminary Census data released today. Imports totaled 1,880,081 metric tons (2,072,432 short tons) for the month of April compared to the 1,863,740 metric tons (2,054,419 short tons) received during the month of March Read more ...

Chinese steel mills have expressed their reluctance to accept iron ore prices of potentially 160 U.S. dollars per ton proposed by Vale and BHP in the third quarter, saying that the price hike will create carnage in the nation's steel industry Read more ...

In an effort to “lower costs” an ArcelorMittal spokesperson has advised Steel Market Update of their intention to “take offline” or idle two blast furnaces at their Indiana Harbor facility. At the same time they will bring up a large blast furnace – the “D” furnace at Burns Harbor Read more ...

Severstal NA has officially announced their intention to sell the balance of the Northern Steel Group assets to Esmark, Inc. Read more ...

Flat rolled steel buyers and sellers continue to be "slightly optimistic" according to Steel Market Update's most recent Market Survey. SMU's Buyer's Sentiment Index registered a +7.2% and the index has been in "optimistic" territory for approximately six weeks Read more ...

Steel Market Update received a copy of the following letter which the Steel Manufacturer's Association (SMA) sent to U.S. Department of Commerce Secretary Locke and the U.S. Trade Ambassador Kirk. The purpose of the letter is to advise the U.S. government that the SMA members are opposed to Anshan Iron & Steel participation in the building of any new steel mills in the United States Read more ...

Severstal NA and Aurora Resurgence, a Los Angeles private equity group, finalized the sale of selected assets of the Northern Steel Group to Aurora. The Northern Steel Group (NSG) is the service center chain which was acquired by Severstal NA when they purchased Wheeling Pittsburgh Steel, Warren Consolidated and Sparrows Point from Esmark Read more ...