SMU Data and Models
Service Centers in Early Stages of Discounting Spot Steel Prices
Written by John Packard
February 17, 2017
Steel Market Update (SMU) watches the flat rolled steel service centers very closely for signs of strength or weakness. These signs come in the form of discounting spot prices to their customers (or to each other). As markets weaken and the steel mills become more aggressive in their negotiations with the distributors, the service centers tend to react by attempting to limit their exposure to what they perceive to be high-priced steel inventories.
Right now, the market spot price cycle appears to be similar to what we saw at the end of the “up” pricing cycle in late 2nd Quarter 2016. The price increase announcements stopped and prices began flattening out and then moving lower. In the graphic below, the service centers are just beginning to break ranks and begin lowering spot prices to their flat rolled steel customers. The ovals above the bars represent steel mill price increase announcements as reported by AK Steel. We use AK Steel as their increase announcements are part of their press release files on their website (so anyone can go look at the announcements). The last price announcement was made in early January 2017.
Early last week SMU met with a manufacturing company and we discussed the issue of steel prices and the manufacturer’s ability to increase prices to their customers. We were told that the mills do not do the manufacturers any favors by having successive price increase announcements with just a week or two in between the announcements. We were told the quicker the increases come, the less willing the manufacturer was to increase prices since history has shown the increases that don’t have time to penetrate through the market will ultimately fail and pull back.
SMU believes the steel mills are about to raise prices again as they try to stop the bleeding but also in recognition of higher feed stock price issues to come in March – specifically scrap pricing.
Can they influence service centers and get them to not offer lower spot prices into the market and, instead, move the needle higher? We may have a chance to measure the effectiveness of a new increase in a couple of weeks when we go out for our next flat rolled market trends analysis.
SMU Note: The Power Point slides shown in our articles are available to those who participate by answering our questionnaire and our Premium level members. To get more information about becoming a Premium subscriber please contact us at: info@SteelMarketUpdate.com
John Packard
Read more from John PackardLatest in SMU Data and Models
Steelmaking raw material costs mixed through May
According to our latest analysis, prices for four of the seven steelmaking raw materials we track increased from April to May. However, select materials saw a collective 1% decline month over month and are down 4% compared to three months ago.
SMU Survey: Buyers’ Sentiment tumbles as caution increases
SMU’s Buyers’ Sentiment Indices resumed their downward trend this week, erasing the modest recovery seen two weeks ago.
Service centers: Mill orders down further in April
SMU’s Mill Order Index (MOI) declined for a second straight month in April after repeated gains at the start of the year, according to our latest service center inventories data.
SMU Survey: Mill lead times edge lower
Sheet and plate lead times declined across the board this week, according to buyers responding to the latest SMU market survey. While our lead time ranges were unchanged compared to mid-April levels, average production times for each steel product we measure have declined from they were two weeks ago.
SMU Survey: Most buyers say price negotiations back on the table
Domestic mills are largely negotiable on spot prices, according to the majority of steel buyers responding to our latest market survey.