Steel Products Prices North America

Let the Games Begin...

Written by John Packard

The steel market, in particular the steel service center market, has been anticipating a flat rolled price increase announcement for the past few weeks. The fact that it was ArcelorMittal USA leading the way should not come as a surprise. The mills that have few to no spot tons to sell are AK Steel, US Steel and ArcelorMittal. So, it stood to reason that one of them would lead the way.

Now, as one service center VP of Purchasing told SMU this afternoon, “Let the games begin.”  He told us that it will be very difficult to jump from the current spot levels (of $600 or slightly less for large tons) to $660 per ton. “The big ‘N’ is pivotal to see if this even has a chance to fly,” was his response to us. The big N was a reference to Nucor which at the time of our conversation had not made any announcement.

As of late this Tuesday afternoon, we have seen price announcements out of ArcelorMittal USA, U.S. Steel, NLMK USA and Severstal NA. We have yet to see announcements out of Nucor, AK Steel and Essar Steel Algoma as well as most of the conversion or mini-mills.

Steel buyers are well aware that the first step in reversing price direction is the “announcement” of a change. Always “effective immediately” which in mill speak generally means that they (or their competition) will be taking orders at the old prices until the end of the week. After that – well, let’s see where the order book is (and your need to buy).

We confirmed with a salesman at one conversion mill that they had advised their customers that they had until the end of the week to place orders on any open outstanding quotes.

A second VP of Purchasing for a large service center group responded to a query regarding the ArcelorMittal price announcement with, “Is there any harm in announcing a price increase?” He went on to say there is little to no risk associated with announcing a price increase when you have no spot tons to sell.

One of the more interesting comments was made earlier this morning during the HARDI steel group conference call. One of the service centers told the group that the process had started. However, the early price announcement leaders were not the mills responsible for taking the prices down in the first place. The weak link are those mills and we will have to wait and see if their order books are strong enough to be able to pull back from the market and wait out any buyers who either choose to wait or have enough inventory to outlast them for awhile.

SMU spoke with one distributor who confirmed they were able to buy 1,000 tons of galvanized last week at the bottom of this week’s base price range. It is a long way (much more than $40 per ton) to move from there to $39.50/cwt ($790 per ton base price levels).  This company was able to time their purchase in order to prevent them from negotiating after price increases have been announced.

Others will be in similar situations as the rumor of a price increase has been in the trade press for a couple of weeks – enough time for astute buyers to have protected themselves.

SMU also spoke to a steel-related consulting company who, when advised of the price increase announcements, told SMU, “Why would they do that?” He went on to cite the narrowing of the spread between foreign and domestic pricing and then asked why would the domestic mills want to encourage buyers to buy more foreign steel? His response to his own question was, “The steel industry is irrational, illogical and incoherent and there is close to 150 years of history to back that up.”

So, let the games begin.

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