Steel Mills

SMU Survey: Steel Mill Consolidation

Written by Brett Linton

Steel Market Update (SMU) conducted our mid-September flat rolled steel market analysis this week. We invited slightly more than 600 companies to participate in the latest survey which analyzes various trends which affect the flat rolled steel market. One set of questions had to do with the consolidation of the steel mills as SDI and AK Steel absorbed the former Severstal NA mills this week and Nucor has announced the purchase of Gallatin Steel.

First, we wanted to know how consolidation would affect the business relationships companies have with their suppliers. Would consolidation make negotiations more or less difficult or would there be no impact what-so-ever.

As you can see by our graphic the vast majority, 68 percent, of those responding to our questions believe consolidation will not impact their ability to negotiate with their suppliers. Twenty-six percent believe consolidation will make negotiations more difficult and 6 percent thought negotiations would become easier.

We believe this almost universal acceptance of change, with almost three-quarters of the respondents believing change to be good or have no affect on their business, is one of the reasons why our SMU Steel Buyers Sentiment Index rose by 11 points this week.

We had a number of comments left behind regarding this question. Here are some examples:

“I would certainly expect to see more discipline in the market relative to pricing.” Manufacturing Company

“The more limited the options the more power the producers have.” Service Center

“The supply base of specialty products (high carbon and alloy) is now much more constricted.” Service Center.

“There is still plenty of competition for all flat rolled products and while consolidation is certainly not a negative the impact will be minimal.” Service Center

“If the mills maintain (or increase) some of the pricing discipline that they have shown recently, steel pricing may not be subject to the major swings that have existed in past years. The opportunity for this to occur is significant.” Service Center

“We’re not big enough players to effect any changes, so we are at the mercy of reduced competition.” Service Center

“Less suppliers is never good for the customer.” Manufacturing Company

“I can’t believe our Justice department keeps turning a blind eye to this consolidation and collusion within the industry.” Manufacturing Company

Next we asked manufacturing companies and service centers to comment on whether consolidation would cause their company to consider buying more foreign steel. The results were consistent between the two market segments with 57 percent of the manufacturing companies and 53 percent of the service centers responding that they would consider buying more foreign steel because of consolidation of the industry.

In the responses, a number of our respondents pointed out that it was not consolidation that would cause them to buy more foreign steel, rather it is the spread between the domestic prices and those available from the rest of the world.

Aside from this week’s survey we also spoke with a number of buyers who were interested in foreign steel. It seems buyers have broken into two camps: 1) those who no longer believe the threat of dumping suits on cold rolled or coated products and are buying from those countries suggested as potential targets (China, India, Taiwan) or 2) those companies who do believe the threat of suits and are searching for trading companies who represent South American or European steel mills who would have interest in shipping to the United States. It will be interesting to see what happens in the coming months with each of these groups.


Brett Linton

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