SMU Data and Models

SMU Price Momentum Indicator: Holding at Neutral

Written by John Packard

The flat rolled steel market appears to be in a wait and see mode.

Flat rolled steel prices continue to be stable to slightly weaker than what we saw a few weeks ago. Nothing dramatic is moving market momentum in one direction or another. Here is how we are seeing the market at this time:

Inventories appear to be plentiful and many buyers are reporting little to no short term concerns (between now and the end of this calendar year) as to any possible steel shortages.

One of the reasons mentioned is the position being taken by a number of trading companies that have been hit by antidumping petitions that the steel being sold into the U.S. market from a number of countries will not be in jeopardy of dumping duties.

We saw perhaps an early sign when the Netherlands and United Kingdom were dropped from the cold rolled countervailing duty portion of the case and are only being investigated for antidumping. Other countries also feel that the antidumping and countervailing duty petitions are off-base and not reflective of what has been happening with steel making input costs and steel selling prices in the rest of the world.

According to MSCI data and from comments being made by service centers over the past few days, inventories at the service center level are high on hot rolled and relatively balanced on cold rolled and coated. What is not known is how much foreign steel sitting on the docks, or that is inbound, needs to be considered when evaluating actual inventories. The buyers at the service centers are not in a hurry to place many new orders and, with short lead times and relatively stable pricing, they don’t have to.

Other than automotive we are being told that Apparent Steel Supply (demand) is “sagging” and the tonnage bought to cover any potential labor issues at USS and ArcelorMittal along with the restock conducted during April and May (both foreign and domestic orders)  will last through the end of the year.

One of the larger national service centers when asked about how their demand was holding up told us earlier today, “[We are] seeing weakness emerging, and can’t get handle yet if it will sustain or if it moves back up/stabilizes. This has surprised us a bit.”

Other service centers have made similar reports of “stagnating” business trends and August being a repeat of July.

Scrap prices may well correct another $20 to $40 per ton according to one of our international trading sources: “My pulse check shows scrap can correct by $20-$40 in Turkey. That’ll mean similar if the the same correction on scrap in the U.S.”  Weakening scrap helps the mini-mills to maintain or improve their margins while leaving pricing alone.

We have learned that Nucor has started raising some of their spot numbers and watching their order book as a precaution should there be a strike or lockout at USS. However, most in the industry believe the situation at USS and AM will take a similar path as what we are seeing at ATI. No immediate supply interruption as the unions work without a new contract for a period of time. This goes back to a comment made about a week ago to SMU by the owner of a manufacturing company who told us, “People don’t strike anymore, unless someone puts a line in the sand and forces the issue.”

Many within the industry feel the time is ripe for that line to be drawn. We will have to wait and see.

The threat of a possible interruption in supply, the trade cases which will take many months to resolve (but in the meantime some of the mills will continue to ship), short lead times, input costs moving lower and demand which is suspect all point to a continuation of a sideways trend to flat rolled prices over the next 30 days.

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