Normally, when the market is starting to heat up and the first of the domestic steel mills announces a price increase, it is matter of a day or two before the others either follow the lead or make a new announcement at a level higher or lower than the first announcement made. The April and June price announcements are good examples where one mill made a $20 move and the others followed (or announced a base price that may have been higher than the $20 but eventually they all come in line with one another due to competitive pressures).
The first two price announcements were each for $20 per ton. There is debate as to how much (if any) of the second price increase has been collected by the mills. Just using numbers, when the first announcement was made at the end of April, Steel Market Update’s benchmark hot rolled average was $445 per ton. Today, some 11 weeks later, our HRC index is $470 per ton, up $25 per ton.
Now, one week ago US Steel announced a $40 per ton and the other mills, who are very well aware that the second price increase didn’t exactly stir the hearts and souls of their customers are waiting to see what, if anything, they should do.
The owner of a medium sized service center told us earlier today, “No one has attempted to match US Steel. That speaks volumes. It’s not like they don’t need it….”
We then spoke about momentum and the items that could possibly move pricing. “This strike thing seems to be a yawn,” is what he had to say about the USW and USS/ArcelorMittal labor negotiations. At the same time the market seems to be prepared for a cold rolled trade case but, “There is a lot of steel in the system. Lots of warehouses are full of steel. We are running out of space…” The result being, “There is not a lot of buying activity.”
Another large service center told us, “Labor; I think customers would like assurances that they are protected, but I don’t have any indication of anyone paying for this protection (with inventory). In general, I think majority view in the market is no stoppage, with a scenario like what is playing out at ATI being likely if no agreement is found. Labor might be harder on the auto business – there, they have targets who have been making money!”
Iron ore prices are down, the dollar is strengthening once again, scrap prices are moving lower and all of this will put pressure on steel prices. The domestic mills know it is tough to go for higher prices when their input costs are going in the opposite direction.
From a large national service center we learned, “For what it’s worth, check out the forecasted prices for IO at the bottom, by this publication [This comes from the bottom of the publication referenced: The MB iron ore price outlook is $35, $30 and $25 for ’16, ’17 and ’18…]. Can you imagine the impact on steel products (globally and US) should this scenario come to pass? And, while these figures seem highly unlikely sitting here in today’s world, just go back over the various bank and analyst forecasts for IO over the last 18 months. They have constantly been revised lower all of the time, so there has been a pattern in place for some time now…”
We have heard from a number of buyers that at least one mill (and we assume others) have brought their prices back in line with the competition where they have over-reached. Without some form of inducement (say another trade case) the market appears convinced that steel prices will remain as they are or only move slightly higher in the weeks ahead.
John PackardRead more from John Packard
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