The service centers who sell secondary or excess prime flat rolled steels are reporting a very tight market as less material is being made available out of the steel mills and holes are developing in steel service center inventories. Secondary steel buying prices out of the domestic mills have been moving up but have not yet caught up with prime is what the president of one Midwest service center told us earlier this week. “Getting steel is so, so difficult,” he said. “It has really become harder and harder and harder to fill our secondary orders.”
He reported that there are “hundreds of inquiries between us and the other secondary suppliers. It is extremely active and there is a steady stream of ‘I need this and I need that.’”
A Chicago area company involved in the secondary flat rolled markets told us, “Definitely a squeeze on secondary, in both volume and quality. With extended deliveries I believe some mills are shipping marginal product and letting customer decide if it’s acceptable thus less good quality secondary is available causing the tightness. It’s interesting to learn what people can use if there’s a 3 to 6 week reroll….”
Companies who take advantage of the mills’ slab inventories are also moving toward prime. “With the rolling time for slabs extended and pricing differential compressed it is sometimes easier to only keep primes in inventory and buy slabs when possible,” is what one service center told us.
In some cases secondary buyers are being forced to go into the prime markets to satisfy their needs.
A Midwest service center source who buys both prime and secondary told us that one very large secondary customer, who has been buying thousands of tons per month for the past 20 years, has gone to one of the mini-mills to buy prime.
The changes in the product mix at the steel mills are also affecting the secondary distributors. We were told the domestic mills are producing more advanced high strength steels replacing milder steels whose rejects were used within the secondary business. The days of finding 20 gauge mild carbon oiled galvannealed in the market are disappearing as the automotive companies move toward light-weighting (changing the thickness) with high strength steels (which can’t be used by mild carbon customers).
There is also a concern amongst the secondary distributors as to what consolidation of the Severstal plants and possibly other mills will have on the secondary market. Mr. Wainscott, CEO of AK Steel, pointed out in their most recent earnings conference call that the Dearborn plant produced much more secondary than the AK Steel plants. Lowering the rejection rate will be a focus of AK Steel management once they complete the purchase of the Dearborn facility.
It is expected that AK will also change the way secondary steel is sold out of the Dearborn plant. As one executive put it, “Doing business over drinks doesn’t work anymore.”
Out of the Southeast we heard from the owner of a secondary service center, “No question the availability of secondary is drying up. Mill list offerings have gotten smaller and have less desirable items… Demand is good but not off the charts. On program secondary, the price is at the borderline of being uncompetitive. Mill list secondary is too expensive for me to buy as more players are bidding up prices as they attempt to fill holes in inventories. Again, the lists are not very pretty and good items go for close to prime numbers. We are sometimes able to get higher prices from customers on the best items but overall there is some margin compression.”
This Southeastern warehouse felt that Steel Dynamics would most likely make changes at the Severstal Columbus mill and they would “…segue their secondary to Paragon Steel, which will change the dynamics of that mill.”
The consolidation of the steel industry over the past two years is playing havoc in the secondary markets: RG Steel – gone; ThyssenKrupp Steel USA – now AM/NS Calvert with a new secondary focus and now the purchase of Severstal Dearborn and Columbus by AK Steel and Steel Dynamics.
Throw in growing demand and lean inventories and you have a recipe for problems/opportunities for those who live and die in the secondary markets.
John PackardRead more from John Packard
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