Service Centers

Service Centers: Are Some Making a Mistake in the Spot Market?

Written by John Packard

Our survey results from this past week pointed to a weakening in the resolve of a number of service centers. There are a group of distributors who believe that prices have only one direction to go from here – lower. Fed by the belief that their inventories will depreciate from here, a number of service centers have begun to lower their spot prices. 

We thought the comments made by the executive at one large service center group to SMU earlier this week might give some of their distributors something to reflect upon:

“Unfortunately, the Service Centers seem to be on a suicide mission with regards to pricing. Since the CRU for HR bottomed in May at $570, prices have risen and still stand now at $70/ton over that figure. They have been at least $60/ton over the low since early July (about 12 weeks ago), yet Service Centers have not passed on anywhere near that amount. Now, to hear that Service Centers are already lowering prices on the expectation of lower mill prices seems insane. You’ve written before that success for mill price increases hinges on Service Centers increasing as well, but this time around seems like an anomaly. The mills have enjoyed higher pricing for over 4 months, while Service Centers have done little in the way of recapturing the cost increases.

From what I’ve picked up, the mills want/need to get bookings done through November, and then they expect seasonal inertia to take over for December and beyond, as buyers move to cover 1st Qtr. Based on HR currently at 4 weeks lead-time, this could be completed in the next 5-6 weeks. This, along with the following factors, could mean that mills won’t need to do wholesale discounting to get books filled through November: 1) still lean MSCI inventories, 2) slightly lower forecasted scrap prices (no collapse), 3) continued mill maintenance projects in 4th Qtr., 4). Mills are negotiating 2014 contracts and will be reluctant to be doing any big discounting at the same time they’re trying to close long term deals.” 

Steel Market Update spoke with the general manager of one of the steel mills this morning.  He told me their facility lead times were in mid-November and they were walking away from spot business below their number (which is at the higher end of our range). He also told us that they had not yet begun contract negotiations but they would walk away from the CRU minus 6 percent deals they got stuck with this year.

We have heard from other mill sources that they too are willing to walk away from some of the lower priced deals.

The question then becomes are the service centers who are selling at below market pricing (for example in the HVAC markets) trying to gain market share at the expense of the long-term profitability of their company – especially if the CRU minus and bucket deals do indeed disappear as we move into 2014?

As always your comments are appreciated.  You can send them to

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