Price Increase Announcements Lead to SMU Price Momentum Change

Steel Market Update (SMU) has adjusted our SMU Price Momentum Indicator to Neutral from Lower. It is our policy to adjust our Momentum Indicator to Neutral and allow the market time to sort through the price announcements and determine how much of the increases will be collected. As we know from past experiences, the fact the steel mills announce increases doesn’t automatically mean those increases will be collected. We will adjust our Price Momentum Indicator to the appropriate setting once the direction of steel prices has been determined.

Background

On Tuesday, ArcelorMittal USA set the bar by providing guidance to the industry on where “minimum” spot base prices should be for new orders.

AMUSA advised their customers that the spot hot rolled base price on new orders would be $625 per ton ($31.25/cwt). Cold rolled went to $825 per ton ($41.25/cwt) and hot-dipped galvanized is now $825 per ton ($41.25/cwt base plus extras).

The mills that have announced $40 per ton price increases have not yet put a “firm” base price out to their customers.

SMU spoke with a mill who has not yet changed prices and we were told, “There are no moves to be made yet. [We are] surveying the landscape.” They advised that their lead times are relatively short (thus the reason not to make moves right now).

A service center executive, when asked about possible market acceptance of the increases, told us, “Well, large inquiries started last week. So, despite the spot market’s downward momentum over the last few weeks, the mill announcements, which caught me by surprise as I was expecting next week, do have a good chance of stopping the price erosion and actually reversing it a bit. How much? Who knows? But mills definitely are resisting the low-priced large-volume transactions that were popping up over the last two weeks at prices under $28.”

This executive then went on to say, “I don’t think there is need to panic, as we can certainly still get business done whether it be off of contract pricing, which is in mid-28’s this month, or wherever it sets next month. (If set today, it would be $27.50, so this move can either keep it static or move it up–but I doubt contracts will go above $30, despite these spot moves that are looking for over $31). Of course, there are both end-users and distributors who are nervous and trying to finalize deals, which gives the mills even more confidence in their actions and expectation that the price will rise.”

Another service center told us that most of the open quotes had expiration dates of yesterday. We were told that, so far, the price increases are “well orchestrated.”

A large manufacturing company sent an email to Steel Market Update this afternoon with a copy of a Korean hot rolled coil quote. The comment from the steel buyer was that the foreign offers on HRC were “on par with domestic.” When asked if the domestic mills were raising prices, they told SMU, “It is a mixed bag right now. Most are still honoring quotations prior to the announcement. We are seeing mills quoting $40/ton higher on new inquiries.”