SMU Data and Models

Steel Price Momentum Shifting? SMU Price Momentum Indicator Moved to Neutral

Written by John Packard

On Friday of this past week Steel Market Update (SMU) adjusted our Price Momentum Indicator from Lower to Neutral. This move is being made as we are seeing more evidence of the domestic steel mills taking a stand and either raising spot prices (especially on coated steels) or refusing to go any lower.

As one steel buyer put it to SMU this morning, “The domestic mills are beginning to close their purse strings.”

There is a rising expectation, especially within those buyers of galvanized and Galvalume products that a price increase announcement may be made in the coming days. One large galvanized service center told us this morning they were expecting a $30 increase to be announced sometime next week.

We heard from a domestic steel mill this morning who told us, “We have had an excellent booking week. I feel that the next two weeks has multiple potential inflection points that could move the needle and some of our customers are clearly preparing for them and restocking ahead. We have two prelim dumping decisions, the enrollment deadlines for healthcare at mills, the AK Ashland decision, and settled/slightly firming scrap.”

This mill source went on to say, “I am not saying price is up for sure – just saying that the very least we have savvy customers placing orders now ahead of potential moves.”

Not everyone is convinced that we are on the cusp of a change in pricing direction. A service center executive located in the Upper Midwest told us on Friday, “What is published and what is really happening seems to be disconnected.  We are still receiving material quickly, Under 2 weeks on HRPO and under 4 for CR and Galv.  Have heard rumors about mills taking stronger stance on pricing but have yet to experience it.” He went on to say, “I do think we are close to the bottom.”

From the East Coast we heard, “You should be getting mixed messages. There is plenty of materials sitting in warehouses or the docks.  Most of it is HR or Cold Rolled.The mills have tightened the reins and are working to hold their prices.  I believe they are succeeding.  Coated materials are much stronger than the other items.For the east coast, once the Cold Rolled on the docks disappear, the pricing will change very quickly.  I would guess February will be a very pivotal month.”

Our move to Neutral does not necessarily mean prices will turn on a dime and begin moving higher. A number of buyers believe prices will trend sideways from here for awhile. A steel buyers located in the Southeast told us, “…[Nucor] Berkeley has told me they are running in mid 70’s on capacity utilization.  In reality domestic #s right now are lower than foreign numbers if you placed a couple of months back.  People are learning there are quality constraints with trying to transfer their business to Vietnam or UAE.  The Brazilians are very iffy on delivery.  It is going to be really hard for other product to displace what was coming from China and I think buyers are beginning to realize that reality.  With the trade cases looming and inventories evening out, I think it will come down to how strong the construction market will be.  Energy is not going to rebound – automotive is about at a peak (can’t get much better – cannot export) so it has to be construction.  I don’t think we are going to see a price spike but I am betting on a leveling out.” 

Coated products appear to be the strongest of the flat rolled products with hot rolled (due to its exposure to energy) being the weakest. We will see if the mills have the ability to collect the higher spot numbers being asked.

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