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

SMU’s April at a glance
SMU’s Monthly Review provides a summary of our key steel market metrics for the previous month, with the latest data updated through April 30.

SMU Survey: Steel Buyers’ Sentiment Indices recover
SMU’s Buyers’ Sentiment Indices both improved this week, reversing the decline seen two weeks ago.

SMU Survey: Sheet and plate lead times flatten out
Sheet and plate lead times held steady this week, according to buyers responding to the latest SMU market survey. This week we saw little change from mid-April levels, with just one product (Galvalume) showing any significant movement.

SMU Survey: More mills willing to deal on sheet prices, less so on plate
Nearly two thirds of the steel buyers who responded to this week’s SMU survey say domestic mills are negotiable on spot prices. This increasing flexibility marks a significant shift from the firmer stance mills held in recent months.

SMU Survey: Sheet lead times ease further, plate hits one-year high
Steel buyers responding to this week’s SMU market survey report a continued softening in sheet lead times. Meanwhile, plate lead times have moderately extended and are at a one-year high.