Economy

What Steel Buyers Think About Pricing & Section 232 Investigation

May 30, 2017

Steel Market Update (SMU) spend the majority of today discussing the flat rolled steel markets with steel buyers from around the country. The main topic of conversation was pricing, which is anticipated will drop over the next 30 days and Section 232 which is expected to end that drop…

Flat rolled steel buyers reported most of the domestic mills as aggressively pursuing orders on a wide range of products. Like most things in the steel business, each mill is acting independently and differently from one another. We heard Algoma was the most aggressive mill in the North while Nucor was reported to have a good book and was reported by a number of buyers as not being aggressive at all.

We also learned that the Mexican mills, which have been mostly absent from the spot market in recent months, was reported to be listening but not necessarily offering right now. We also learned of Russian cold rolled being offered at prices not much higher than domestic hot rolled ($31.50/cwt CIF, Duty Paid, US Port).

The mood about demand was all over the board with some reporting good business conditions and others telling SMU that there was some weakness in their order book. SMU did not detect any panic or concern from those with whom we communicated with today.

When it came to flat rolled steel prices we learned the following:

“Definitely most mills aggressive on spot tons (it is dependent on product and mill) – they are also being “creative” in how they are structuring deals in order to keep the “Base” elevated. Everything is negotiable – Hot Rolled is definitely showing weakness from a demand standpoint. Virtually every mill we do business with are producing orders early.” Service center

A manufacturing company said, “As for prices dropping further, I think the answer is yes, but I also see a floor coming and not so far into the future. Business is not bad for this time of the year. Uncertainty in the environment due to Trump Trade has become challenging to navigate through. We’ll be fine…….just have to take a savvy approach to maneuvering through the maze, is all.”

“Prices seem to be slipping at an accelerated rate, but see things slowing down as we complete July bookings, figuring that will be the most challenging timing for the mills with auto and OEM holiday outages,” is what we heard from the president of a large service center. “The price has already gone lower than we originally expected, so we’re concerned what the bottom could be within the next three weeks or so.”

A manufacturing company reported, “Domestic mills are now experiencing what they did in 3rd Quarter last year. The big difference between this year and last year, is that we started announcing price increases last year to the market in April, May and June for May, June and July. This brought consumption ahead into the 2nd Quarter and 3rd Quarter was dismal. This year we started announcing in Dec ’16 and early Feb for Jan and Mar. This brought business ahead into the 1st Quarter and now there is a slump in the 2nd Quarter. The domestics are freaking out and wondering where all the business is? Well, again compared to same time period last year it looks dim. Also, the amount of coated imports is actually higher this year than last on the main item we use – Galvalume. Hopefully the mills will restrain production rather than getting aggressive on selling tons.”

“HR has slid in the past few weeks – but seems the mills are trying to hold it as steady as possible. The range of pricing on HR varies greatly by mill and opportunity… CR and Coated remain more firm – but still a wide range given that we have seen some aggressive movement by a few converters (who have limited capabilities and lots of space).” Service Center

“Barring any trade related action, we’re fully proceeding as if prices will fall further. Not sure where the bottom is. We think it’ll be a slow slide all the way until something from 232 helps the market.” Service center

A number of buyers told us the firmest product continues to be plate.

Section 232 is Subject of the Day

We heard the number of foreign offers has been in decline with many buyers believing the Section 232 investigation is frightening off some mills/countries until there is more clarity. One service center called the Section 232 investigation as the “900 pound gorilla in the room….”

“We think 232 and/or circumvention will tighten the market in some form and already we’re seeing foreign offerings slowing down and being offered with language to cover any ‘government action’ to limit liability. This may actually help domestic pricing soon as folks realize foreign is not as available or look to hedge with domestic tons just in case,” said one service center executive.

Many believe the Section 232 will have a dramatic impact on the steel industry and steel prices.

The owner of a mid-sized service center told us, “If anything it [Section 232] will over-reach a little bit. Anybody sitting on their hands will come back [start buying again] and the mills will announce another $30 and then $40 and so on.”

A service center steel buyer told us, “I feel certain a price increase announcement will be made about the time June scrap is settled, which will signal the bottom. Announcement on 232 by the end of June will further solidify pricing.”

A large service center provided their views on Section 232, “Outcomes from the 232 are just speculation. Lower US prices do much to stall imports.”