Futures Markets Shrug off USS Price Increase Announcement

The following article is written by Spencer Johnson of FC Stone LLC. With six years of experience, Spencer provides his customers strategic and tactical advice on protecting themselves against commodity price volatility in the steel markets. Spencer will rotate weekly futures articles with Andre Marshall of Crunch Risk, LLC. Spencer can be reached at spencer.johnson@intlfcstone.com.

As is so often the case, US Steel has chosen a particularly interesting time to begin a push for their $40/ton price increase on all flat-rolled products, and that’s without even diving too deep into the fact that a looming Grexit is stoking fears of an economic contagion in Europe. You know it is not a good sign when a huge financial crisis potentially looming in Europe doesn’t even make our top 3 reasons to be skeptical of pushes for higher steel prices. Granted, spot prices have stagnated around the $460/ton mark and mills would no doubt like to see a little rally, but the fundamental story behind this increase is weak, which is likely why no rationale was given by USS in their original increase letters that we have seen. Those letters, which came on Tuesday, had been more than welcome on the part of the bulls but we see the deck being stacked against the US mills on this issue for three reasons. Note that we do believe prices will indeed get a $40/ton boost, we just don’t see this happening in the short-term but instead as part of a long slog that will likely get us there sometime in the fourth quarter (in short, we are in agreement with the NYMEX HRC contango levels as being a fair estimate, more on that below).