SMU Price Momentum Indicator Adjusted to Lower from Neutral

We have been holding back waiting to see if the negotiations between the United Steelworkers and U.S. Steel / ArcelorMittal USA would end in a stalemate and a potential lockout by the mills. The two sides continue to talk and to operate under the old contracts. It does not appear that either mill is anxious to lockout the union workers and that the mills could run for sometime without a contract.

Lead times continue to be quite short which pressures prices. We are being advised that benchmark hot rolled is being offered at, or slightly above, $400 per ton which is essentially the same as foreign steel (usually domestic steel carries a $40-$60 per ton premium over foreign hot rolled).

Inventories at service centers are quite high and we are forecasting that they will remain excessively high through the remainder of calendar year 2015 and into early 2016.

We are seeing a slowing trend in demand for flat rolled steel products. In our most recent flat rolled steel survey we asked if the respondents were seeing a slowing trend in orders from their customers – 49 percent of the respondents said yes.

SMU Steel Buyers Sentiment Index has been dropping in both Current and Future Sentiment readings.

In our conversations with buyers we detect a greater degree of skepticism that market prices can rally from here. This was clear when on our HARDI galvanized steel conference call one of the wholesalers reported that their customers were no longer taking positions as they were aware of the falling prices and were choosing to live hand to mouth to protect against devaluing their inventories.

Scrap prices are poised to drop $20 to as much as $50 per gross ton in October according to our scrap sources. This will allow the mini-mills to be more competitive should they choose to do so (and will create downward pressure from buyers who are also well aware that scrap prices are in decline).

We are beginning to see seasonal pressures starting to affect the market.

SMU will continue to monitor the markets on a daily basis and make adjustments to our Price Momentum Indicator once we detect changes in the items listed above.