Steel Products

Bowl Games, NFL Playoffs & Steel – Welcome to the New Year

January 2, 2013

Most of the month of December was spent treading water as flat rolled prices essentially ended the month where they began as the market searched for a clear direction.

The discussion for the entire month had been the same as what it has been over the past twenty-four hours – the fiscal cliff and the uncertainty the government has caused business – even as our economy improves.

An executive of a Midwest based service center expressed their expectations and concerns for the New Year to SMU within the past few days:

We know that our customers will be back in the market after the holiday as most of their inventories have been stretched thin but we do not expect there to be a lot of demand. We are watching scrap carefully to see if the market makes any kind of justifiable move and expect at least one more round of published increases but we do not expect them to stick and in fact expect pricing to begin the spiral downward earlier than in the past. Most of our customers are expecting a flat first quarter while we wait to see what happens to the fiscal cliff and the possibility of a second recession it may cause.

A large service center had a unique and optimistic view of the coming year when one of their executives told SMU:

With the College Bowl Season in full swing and the NFL playoffs around the corner there are office pools and wagers being placed everywhere. Just as most casinos and bookies rake in the money from people who claim to be football experts, I believe our market may suffer a similar fate. The vast majority believes there are too much steel, too little demand, potential recession, and overall weakness – so they quickly reject the mill announcements and say “the pricing won’t stick”. All I know is Vegas continues to build billion dollar casinos and offer free steaks and shrimp…and all by going against the “vast majority”.

With that being said, Steel Market Update (SMU) Price Momentum Indicator continues to be in Neutral as we wait for directional signals as to where prices will move from here.

As we enter the New Year, one of the first keys to watch will be scrap negotiations between the domestic mills and their suppliers. Early indications, based on SMU sources, are for prices to move sideways to up by as much as $20 per gross ton. One of our east coast scrap sources told SMU just prior to the New Year the following:

“I expect cut grades and prime to be close to sideways to up maybe $10/GT. I think shred could be a little stronger, maybe up $15 or $20/GT. I want to say the market is decidedly stronger overall but really can’t. Weakness in export demand is keeping a lid on things, notwithstanding that we are seeing some better uptick in domestic demand. I would have expected some higher export prices at this point but there is not a lot of activity yet. When we do see better export prices I expect them up $20 from where we are today. With the port strike now averted, that will help too. But domestic mills aren’t without scrap at this point like they were in previous Januarys. With broader uncertainty in the world right now, no one is up for buying much inventory that could drop in value rather quickly. Bottom line – better domestic demand to keep the market up and maybe push it a little higher on the particularly tight grades, mainly shred.”

We will also need to watch demand closely, inventories (and whether there is a need to reorder thus pushing lead times) and momentum. Steel Market Update will begin the New Year with our first steel market survey which will begin at 11 AM ET on Wednesday, January 2nd and will continue through the balance of this week.