Steel Success View from 30,000 Feet

Written by John Packard

Earlier this week, World Steel Dynamics and their friends at AMM, hosted their Steel Success Strategies conference in New York City. Over the past 40 years the conference has become a magnet for those associated with the steel industry from around the world.

Not everyone can afford to attend the conference which runs about $2300 per person. There are also a few people who they prefer not having on their conference floor (those that they consider competitors like Steel Market Update).

However, having steel in our veins just like everyone else, we are attracted by the magnet and we managed to make our way to New York City to rub shoulders with the have’s (corporate executives) and have not’s (sales and some purchasing).

One of the subjects discussed during one-on-one meetings with service centers, steel mills, trading companies, financial analysts and others, was on how far flat rolled steel prices can rise if we consider that the U.S. is not an island and steel is a world commodity.

As such, much like domestic scrap prices which are influenced (both up and down) by the export markets, so too will the steel industry be influenced by world commodity and steel prices.

With the fall of iron ore from 2014 high’s in the $140’s per dry metric ton to today’s levels which are closer to $60/dmt (62% Fe spot pricing FOB China) we saw scrap prices reset in the United States as have steel prices (one year ago iron ore was $93.5/dmt).

If you think back to one year ago, benchmark hot rolled pricing was $670 per ton. Over the past year as iron ore, metallurgical coal, scrap and other inputs have fallen, steel has dropped $210 per ton.

The domestic mills have managed a meager bounce over the past four or five weeks and have managed to find the bottom of the trough and (dead cat like) bounce off the bottom.

Foreign prices, on the other hand, have not risen to the challenge and changed their stripes (or offers). Those mills unaffected by the AD/CVD trade suit are offering steel just as they have before. There was talk amongst the traders that maybe as the domestic prices moved higher so should the foreign numbers. Not because their costs have changed but trying to take advantage of the opportunity that the trade case provides. But, that is a “maybe we will move prices” and not a “we have moved prices” higher.

I spoke with a conversion mill (conversion mill is one who buys substrate such as full hard cold rolled and then converts it to galvanized by annealing and adding zinc to the surface of the steel) about their order book. They told me they were 75% sold out for the month of July and have been able to move spot pricing up by the $20 per ton level and in some cases higher.

They explained that there are some buyers out there who leverage domestic mills with what they can buy foreign in order to drive domestic prices down. Now that the sources of supply have “dried up” with the filing of the trade case the leverage is not quite as onerous. The result being those “non-core customers” are having to pay more to get steel in July and most likely even higher prices in the future.

A second conversion mill told me that they had not totally eliminated some of the lower bases that they have had to carry on their books. But, they would eliminate those numbers in the next few days and take everyone to at least $29.00/cwt base pricing if not higher.

The trend is for higher prices. I spoke with a trader who wanted me to explain to my readers that they should concentrate less on “the” number, as there is not one transactional number. Instead, good steel buyers are aware of the trend or the momentum of the market and through publications like SMU are able to see the ranges. Buyers should not be lured into thinking they will get the lowest number published in our range just because we said it existed.

Going back to the two conversion mills, what we understand is that “core” customers are given as many considerations as possible. Someone who is a regular customer, pays their bills and takes consistent tonnage is going to be treated differently than the spot buyer who comes and goes with the speculative winds of the market.

Now back to the original discussion, at what level can domestic mills feel comfortable collecting higher prices?

At what point does the domestic buyer just change foreign dance partners and continue to ignore the needs of the domestic mills?

There wasn’t an easy answer given by those with whom we spoke. However, it does appear that the domestic steel mills are cautiously moving prices higher.

There is a rumor which circulated around the conference and with buyers with whom we communicated in their offices. The rumor is to expect a second price increase announcement – soon.

One may be coming, but I would be surprised if the mills went for more than $20 per ton ($480 to $500 ask on hot rolled and $580 to $600 or $620 ask on CR and coated).

SMU Note: the above article was originally written on Wednesday, June 10th on the airplane back to our offices and prior to the Nucor price announcement (and ArcelorMittal which followed Nucor today).

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