SMU Data and Models

Supply Questions Continue to Keep SMU Price Momentum at Neutral

Written by John Packard

Steel Market Update (SMU) has received many emails from our readers as well as interested parties regarding our SMU Price Momentum Indicator which we have had at Neutral since Friday, August 23, 2013. Since that time we have seen hot rolled pricing remain in the $630-$660 per ton level (see Comparison Price Indices article below) with the SMU average down $5 per ton from the peak of $650 per ton.

The reason why flat rolled steel prices have not dropped has been the constriction of supply. Even with the restart of the AK Steel Middletown blast furnace and slab supplies in the process of being rebuilt at ThyssenKrupp Steel USA plant in Calvert, Alabama, we are not seeing excess supply pouring back into the market.

On Friday, we received an email from an AK Steel automotive related buyer who told us that AK Steel was, “…just now shipping out the last of our orders that we had originally asked for in July.”

Late last month we heard from our TK USA sources that they would not have their slab inventories rebuilt until the end of September. Through the 10th of September import license data as reported by the U.S. Department of Commerce, slab imports for September do appear to be headed for a much higher tonnage volume than prior months. The forecast for slab imports (semi-finished which includes blooms and billets as well as slabs), based on 10 days worth of data, is for approximately 800,000 metric tons of semi-finished to be imported this month. This would be significantly higher than the 517,000 metric tons imported in August. This calendar year May had the highest tonnage of semi-finished at 602,384 metric tons.

At the moment, SMU is not seeing a surge of flat rolled imports based on the first 10 days of import license data for the month of September. The one exception could be hot rolled where 117,968 metric tons of license requests have already been received and our forecast is for approximately 350,000 metric tons of HRC if the license rate continues for the balance of the month. August HRC imports were 251,027 metric tons according to Preliminary Census Data.

Cold rolled imports are forecast to be 114,000 metric tons which is at the high end of normal. Galvanized imports are forecast to be 134,000 metric tons which would be at the low end of normal and, Galvalume imports (other metallic) is forecast to be 58,245 metric tons which is at the high end of normal.

We are also not seeing a flood of low priced import offers into the market. We spoke with a buyer late last week who told us they have been shopping a 5,000 ton need and to date haven’t been able to get price offers low enough to pull the order from the domestic market. A hot rolled buyer in the Southwest told us the Mexican HRC numbers were just below $600 per ton USA border but, tons are limited and freight is a consideration when compared to domestic mills. We also heard that Ternium had cancelled at least one large order into the USA due to production issues in Mexico.

The domestic mills still have a number of maintenance and construction projects scheduled which will take capacity out of the market through the end of the year.  One of the biggest projects is the width expansion of the hot strip mill at Nucor Berkeley.  One of our financial community contacts who spoke with the mill about the work advised us that the HSM will be down for three weeks in December affecting approximately 150,000 tons of production.

We have a number of blast furnaces coming back online and one which just went down. The bottom line from SMU perspective is the surge of steel coming back into the market shouldn’t hit until October and probably mid-October as furnaces take time to bring back online. Buyers will need to be cautious at that point in time to see if the dynamics of the market are such that prices will bend more than we see them at this point in time.

For now, SMU Price Momentum Indicator continues to be Neutral – meaning prices will trend sideways for the time being or that the market is in a transitional phase having come off a higher price cycle which began in late May of this year.

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