Steel Products
Price Increase vs. Fair Value: Debate Continues
Written by John Packard
March 8, 2013
In our last issue of Steel Market Update we published an article regarding the latest round of price increases and how those responding to this week’s steel survey felt regarding the potential success of this increase versus the one announced six weeks earlier. Our survey was finding 60 percent of those responding to the survey did not feel the most recent increase stood a better chance of having some or all of the increase collected than the one announced in January.
We received a number of comments similar to this one which was made by a trading company about the domestic steel mills, “$50 was too high and demand has not changed. Same old story USS & ArcelorMittal are operating too many blast furnaces for the demand. I’m too dumb to get out of the steel business but even I can figure out that too much supply and not enough demand = lower prices.”
But not all companies are tied to the supply and demand balance as the driving factor to steel pricing. An executive with an Upper Midwest service center sent SMU a note on Wednesday morning in support of higher prices as being “fair” and that the domestic steel “food chain” would be stronger if prices rise:
“Companies are too caught up in the words “price increase”. How about we just say that the mills are pricing the steel so they can make some type of profit. Is that not reasonable or fair? With scrap up and demand a bit off of forecast, the mills obviously have to do something to break even. Why do companies constantly ask for the mills to be the one to suck it up and not be allowed to make a profit? End users are doing fine (just look at the earnings of public companies) and service centers are for the most part profitable. The market can easily withstand a small increase to allow the mills to do better.
What should the price of steel be? It should be at a level where all the players in our food chain are allowed to make some profits. That is the definition of a strong chain. If any of the parties in the chain are forced to lose money then the chain falls apart. Mills cut back on resources which negatively impacts the rest of us.
So in summary what I’m saying is the new price levels announced seem to be justified and needed.”
SMU expectation is most within the steel industry would prefer for the domestic steel mills to be very profitable which in turn makes for a secure and stable North American supply chain. At the same time, the core focus of many companies is on their bottom line and not that of their supplier. If a supplier is not able to understand the dynamics of the marketplace (i.e. adjust supply to meet demand) or unable to lower the cost to produce a product (such as introducing new technologies to produce steel less expensively) – it is not the steel buyer’s responsibility to carry the supplier. This becomes even more evident if the competition is aggressively after your customers. So, I expect there will be some who will disagree with our service center. You can send us your thoughts at: John@SteelMarketUpdate.com. I will also post this article in the Steel Market Update LinkedIn steel group which you are welcome to join and participate in the discussion.

John Packard
Read more from John PackardLatest in Steel Products

SMU scrap market survey results now available
SMU’s inaugural ferrous scrap market survey results are now available on our website to all premium members. After logging in at steelmarketupdate.com, visit the pricing and analysis tab and look under the “survey results” section for “latest survey results.” Past flat-rolled survey results are also available under that selection. If you need help accessing the survey results, or […]

SMU flat-rolled market survey results now available
SMU’s latest steel buyers market survey results are now available on our website to all premium members.

US HR prices pulling away from offshore tags
Hot-rolled (HR) coil prices moved up again in the US this week, while tags abroad were largely flat. The result: the margin US hot band holds over imports on a landed basis widened further.

ArcelorMittal to start building Calvert NGO electrical steel line this year
ArcelorMittal announced on Thursday that it will begin the construction of its new $1.2-billion electrical steel mill in Alabama later this year. The steelmaker said it is proceeding with plans to build the new greenfield mill near its existing AM/NS joint venture in Calvert, Ala. The ArcelorMittal Calvert plant will have an annealing pickling line, […]

AISI: US steel shipments rise in December
Domestic steel shipments increased month over month and year on year in December, according to the latest data from the American Iron and Steel Institute (AISI). US steel mills shipped 7,145,016 short tons (st) in December, up 0.9% from 7,082,921 st in December 2023 and 6.6% higher than 6,702,557 st in November 2024. For the full-year […]