Steel Products

Market Expects More Mill Announcements to Stop Price Slide

Written by John Packard


As Steel Market Update (SMU) checked with various market sources after the AK Steel price announcement we found most of the industry expecting the other domestic steel mills to follow the AK Steel pricing lead. At the same time, most buyers expect the net result to be an end to the current slide in pricing – if only for a short period of time – before market fundamentals kick back in.

The head of corporate purchasing for a large service center organization pegged the AK Steel announcement as putting their new base price at $31.00/cwt ($620 per ton) which may be one of the reasons why the other mills are hesitating with making announcement of their own (they are already close to or above $620 per ton). This executive told us, “It will be good for the industry for the rest of the mills to follow. Even so, negotiations will continue to go on. I don’t see prices going to $33.00 [$660 per ton].”

The manufacturing company who reported the preparations of the increase to SMU last week told us today, “…generally low inventories at most steel consumers should increase order flows if people believe lead times will move out. I’m not sure everyone is willing to believe that at this point…” This manufacturing company went on to say, “…I expect prices to move temporarily. The current fundamentals of, overcapacity, inventory aversion and an uncertain business climate trump all the old tricks that have worked in the past.”

SMU heard from both manufacturing and service centers that demand has been steady but not necessary stellar. As one service center told us, “There is no change in demand. It’s OK – it hasn’t fallen – that’s a good thing. Nobody’s panicked, nobody’s worried.”

Prior to the AK price announcement, and in response to SMU articles about pending price changes coming, we received this comment from a trading company, “One of the comments you received about pricing was ‘Mills contend that prices are below their costs, and if true, they deserve to cover their costs and raise prices’. Mills, service centers, or any other companies don’t ‘deserve to cover their costs’. Rather it should be said that companies are obligated to cover their costs. If they don’t, they should either find ways to lower them, get out of business, or participate in markets where they can obtain pricing that does cover their costs…” He went on to suggest that one or more of the integrated mills  take capacity out of the market.  This is probably not something on the top of US Steel’s and ArcelorMittal’s New Year list of things to do to help their competition (and themselves?).

Goldman Sachs steel analyst Sal Tharani, in a note to his clients dated earlier today, spoke of the 2013 steel calendar year as starting with a thud rather than the normal first quarter bang.  “The recent erosion of steel prices to below $600 per ton for HRC from around $660 in early December is an unusual seasonal trend. Our checks indicate that even small volumes could be bought at just under $600/t and large volumes are transacted well below this level. Although demand is stable, what is missing is an appetite for the supply chain to re-stock on the optimism of the seasonal demand increase that is generally seen in the early part of the new year. It appears that 1Q2013 could be the worst first quarter for steel prices since 2010.”

Mr. Tharani did note the AK Steel price increase and suggested it could temporarily stop the price slide.  He also mentioned further price increases “cannot be ruled out” due to the recovery in ore prices, higher foreign prices, discipline at the domestic mills and their running rates and seasonal trends looking positive. Even so, the Goldman analyst is not a believer in any major upside to the 2013 steel market.

It is still early and we will have to wait and see what the rest of the domestic steel mills do in the coming days – and how the buyers react.

For now – the SMU Price Momentum Indicator continues to point toward Neutral meaning prices could go in either direction over the next 30 days.

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