Steel Products Prices North America

Steel Buyers Beware: Interesting Flat Rolled Steel Spot Market Developing

Written by John Packard

We spent the last two days canvassing as many buyers and mill sellers of steel as we possibly could. Our goal was to gather enough information so we could speak to the development of this market and the direction prices should go from here.

What we found is a market that is perhaps stronger than people thought it would be and there is an ongoing debate as to whether prices will collapse, tread water or move higher from here.  There is no consensus as to what is going to happen next.

Trade Suits Could Drive Prices Higher

There does seems to be a wave building which is associated with the threat of dumping suits on light flat rolled steel. Our market sources are pointing to a late August/early September filing date. If trade suits are filed, and the market has been talking about Chinese cold rolled and coated (galvanized & Galvalume) potentially from China, Taiwan, India and South Korea as being the potential targets, the potential for a surge in pricing exists as we move into late 3rd Quarter and 4th Quarter 2014.

Just about everyone in the steel industry is convinced that there will be dumping suits filed against light flat rolled (cold rolled and possibly coated steels – galvanized & Galvalume). Everyone is talking about what happens when (not if, as the majority of the market seems to be convinced dumping suits will happen) the suits are filed.

One of the conversion mills spoke with us today and told SMU, “Customers are believers. However, very few of them are willing to be with their money [buy higher priced domestic steel]. I believe where there is smoke there is fire. Chinese are a total lock [that suits will be filed] and every trader will cancel orders once the suits are filed.” He went on to tell us that the Chinese mills were offering “expedited delivery” on new orders into the Port of Houston. By expedited he said customers are being told the steel will ship within the next 30 days in order to avoid any potential dumping claims.

SMU was told that the key to any new dumping suit rests on the shoulders of the International Trade Commission which will rule on countervailing duties on oil country tubular goods (OCTG) at the end of this week. If they find injury and hit the South Koreans with high duties the domestic mills will be ready to make the next move. If the ITC finds no injury… that could spell problems for any new suits.

Our understanding, through the conversations we had with steel mills today, was one issue with the filing of the suits was making sure automotive would not be hurt in the process. We were told to look for exclusions on I.F. steels and coils that are wider than 60 inches.

A service center provided their perspective this afternoon with, “[There] seems to be a fair amount of effort being placed to not follow thru.  Having said that, the mills are doing very well domestically and might struggle to prove injury.  On the other hand, end users will have a case to make against the suits.  Foreign steel made a significant and necessary contribution to US steel supply in the first four months of the year. [It] seems that just the threat of suits has slowed the offers substantially.  If the mills do in fact follow thru, things could get very tight in the USA in Q4 and 2015.”

Prices Will Collapse

A number of buyers, specifically large service centers and a few large manufacturing companies, are of the opinion that prices could be about to collapse.

The number of spot flat rolled steel transactions (spot orders being placed for future delivery) has slowed according to a number of steel buyers with whom SMU communicated since the beginning of this week.  A manufacturing company shared this with us this morning, “Production of steel is outpacing order entry.  CRU’s monitor last week went up $5/ton and had the lowest volume of orders since the week between Christmas and New Years.”

This same manufacturer pointed out that the spread between scrap prices and those of hot rolled coil is over $315 per net ton. “This is not sustainable,” he told us. He also pointed out that U.S. prices were $175 per metric ton above European pricing.

The amount of tonnage at the ports is immense and a central USA located service center told us in an email, “I did hear that CR (foreign and domestic) is available now in warehouses, in what was described as ‘plentiful’ quantities. This is a change from just a month ago when the product was pretty tight. Spot prices are still being offered in a range from current CRU level to CRU less $25/ton. There is a concern that discounts may need to increase moving forward, in order to generate orders, since domestic mills are on time, and/or buyers have received in foreign material themselves and are covered for the near-term.”

Future Pricing Visibility is Muddy at Best

An East Coast service center told us, “The big question is will the trade suits hit and if so, what impact on availability and pricing it will have.  Our answer is that we have plenty of inventory in house and on order to support our current levels through year-end.”

We understand that the warehouses at the Port of Houston and other ports around the country are filled with steel, some of which is unsold. There are some who are betting that dumping suits are coming and that their foreign steel will be worth more in the coming months. If that does not happen, that steel will be sold into the market for whatever the market will bear at that point in time.

Dumping suits, no dumping suits… foreign steel flooding into the U.S. and maybe coming to a quick stop and what if the suits (if filed) are ignored, much as the South Koreans have done with OCTG?

It is going to make for an interesting next few months.

Stay tuned…

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