SMU Data and Models

SMU Price Momentum Indicator Still at Neutral

Written by John Packard

A little more than two weeks have passed since Steel Market Update adjusted our forward looking Price Momentum Indicator from “Lower” to “Neutral.”

Looking back on the historical trend for flat rolled steel Price Momentum you have to go back a year before you would see our Price Momentum Indicator pointing toward “Higher” flat rolled steel prices. Since that time we have either been at Neutral or Lower.

On March 26th, when we first moved our Indicator from Lower to Neutral, we told our readers that we believed at that time the low point for hot rolled coil pricing to be $440 per ton with $480 being the high end of the range (with an average of $460 per ton). This was $10 per ton lower than the $470 per ton price average we had when we made the change.

We moved through $440 per ton on the low end of the range this week although one of the service centers who told us they were at $435 per ton told me that not all mills were at that level and it was “a struggle” to get below $440 per ton.

Steel Market Update is still of the opinion that our Neutral ranking for Momentum is justified.

Over the past few working days we have heard from a number of buyers and a couple of steel mills that the quoting activity has definitely picked up. There are a number of end users who are looking to cement in prices at what they believe to be exceptional numbers (especially when compared to the last couple of years).

This is not to say that buyers are rolling over and paying the existing prices being offered. Many have been burned in the past and, as one mill put it, “…Everyone digging for ‘best price.’” But, there is business to be had and deals will get done once the market understands that conditions (the market slide) have changed and it is time to lock in pricing.

No one is building inventory – even service centers who have steady business are continuing to maintain and not build. Everyone is looking to move off inventory and from our vantage point we are waiting for the tipping point (reduced foreign steel imports) to hit.

At the moment it doesn’t look like April will be the month. But, the data is still early and we will need to see if the flow of license requests slow over the next two weeks.

We are hearing that a couple mills are showing lead times as being longer than a couple of weeks ago. This is a good sign and one which will need to be watched carefully. As lead times move out, buyers have to move in.

We had an interesting conversation with one service center executive this afternoon who pointed out that once the market direction changes things could move very quickly. The pent up demand at the end users along with their desire to lock in the lowest prices seen in a long time could spike orders very quickly.

Secondly, as we move into third quarter we need to remember there are two integrated steel mills who will be negotiating new contracts with the USW. If there is any threat to a peaceful, quick resolution then there will be a number of automotive companies and other large OEM’s who will ask for additional inventories to be rolled in order to protect their business.

If by chance, the two occur at the same time (OEM’s come in looking to lock in prices and tons, automotive and other OEM’s looking for protection from supply interruption) Katie bar the door.

Third, scrap prices seem to have firmed and spot iron ore prices in China are back to $50/dmt on 62% Fe fines.

For now, SMU continues to point toward Neutral price movement. We could see a continuation of the very slow slide in prices with another $5 or $10 in risk over the short term or the market could start to trend sideways as the mills figure out that another $5 or $10 per ton doesn’t buy them much new business…

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