Steel Products Prices North America

Flat Rolled Steel Market is Officially On a “Wild Ride”

Written by John Packard

Is Now the Time to Panic as Steel Mills Control Their Order Books?

The flat rolled steel markets continue to march to their own drummer. Lead times are extending, spot flat rolled steel prices are rising and many of the mills are not opening their order books for spot business.

There are a number of reasons for this (in no particular order of importance):

First, scrap prices are rising (up $40-$55 per gross ton in early April transactions) and what is not known is what the mills will have to pay for scrap in May and June. Since the mills order books are into those months (and beyond), if they take orders now they are operating under an assumption of future cost that may prove to be incorrect.

Second, automotive continues to be quite strong and the mills are telling us contract customers are ordering and taking the maximum tonnage allowed (this is important to remember, changes in sentiment and a drop off in ordering patterns on contract tons could be when we see cracks in the foundation to pricing).

Third, supply is constrained with AK Steel Ashland, US Steel Fairfield and US Steel Granite City all having their steelmaking operations either temporarily (Ashland, Granite City) or permanently idled (Fairfield).

Fourth, supply is further constrained with not all the mills taking spot business or offering prices to the market at this time. A good example is Nucor which we were told had not yet announced their new spot pricing.

Fifth, the supply issue coupled with customers reacting to the lengthening lead-times, has created a “sense of urgency” within some companies which helps fuel the fire. We heard words like panic, controlled order entry and allocation which can, at times, be used to pour gasoline on a growing volatile situation.

Sixth, there are foreign tons available but we are hearing in many situations the prices are not (or were not until recently) attractive. Especially when taking into consideration the lead times to receive material here in the United States. Foreign tons will continue to enter the market but at reduced rates.

The issue of supply is definitely becoming THE KEY factor as companies are beginning to struggle to get steel out of some of their suppliers. Case in point, we received the following information from a large service center this afternoon (Tuesday, April 12th):

Thought I needed to share this with you:

Nucor Decatur is closed for all spot business thru June. Will not quote July.
SDI Columbus opened at 25.50/34.50 and allocated a very small volume of tons.
Arcelor has told us no spot thru June, will advise when July opens.

Right now, we are “no quoting” every inquiry coming in, and there are a lot.

Panic has officially arrived.

The Big “A” Word is Out There

SMU is hearing from service centers around the country that order flow is being controlled coast to coast. A Phoenix based service center told us they had very small allocations from their west coast mill sources.

A much larger service center also located on the west coast told us that they were selling out of their availability and the understanding they had was Korea and Taiwan were sold out.

A medium sized service center reported that “we are allocation” and their customers are in “sticker shock”. At the same time the president of this distributor told us that he had just had a conference call with his sales team with the theme, “Can I at least get the margins up?”

An end user spoke with us late this afternoon and told us that he was “skeptical about how much panic is really out there.” He was not yet sure if this is “real” or will the “pedal ease up a little bit by mid to late summer?”

A large service center pointed to one of their mill suppliers who actually had more tons to offer recently due to productivity gains as they maximize their production equipment. Those tons, however, were quickly and quietly sold into the market.

Another large service center told us that the numbers are definitely going higher but, from their perspective “No worries about availability.”

The bottom line from what we are seeing and hearing from steel buyers in the marketplace, expect prices to go higher and steel to be “tight” over the next month to two months. We recommend buyers stay alert to lead times and stay close to their suppliers (and SMU).

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