Steel Products Prices North America

Steel Buyers React to Nucor Price Announcement

Written by John Packard

Yesterday, Nucor announced a $40 per ton ($2.00/cwt) price increase on all flat rolled products they produce. The increase was to take effect immediately on all “spot” orders. On paper, the increase announcement does not impact contract pricing.

However, steel buyers are advising Steel Market Update that the reason behind the Nucor announcement was two-fold: first, to stop the slide in spot pricing, which has taken hot rolled from approximately $900 per ton ($45.00/cwt) down to $835 per ton ($41.75/cwt). Second, contract negotiations are ongoing and there has been some resistance to the numbers being proposed by the domestic steel mills. Many contracts are tied to the CRU index and the possibility of prices moving higher will motivate buyers to lock in now.

Steel Market Update spoke with steel buyers and executives to get a sense of the opinions being held by the manufacturing and distribution segments of the steel market.

As with any price increase, steel buyers and the executives who run companies buying steel, have different opinions on the reason for a price announcement, and questions. Will other steel mills follow Nucor’s lead? Will the increase stick (all or part)? Ultimately, what will the market look like in the coming weeks and months?

“No, I don’t think this increase sticks, and it probably wasn’t intended to do so,” said one vice president of steel purchasing. “The mills are trying hard to keep pricing up, while some of them are still out looking for tons. The mills have unrealistic expectations of a ‘floor’ on pricing, and at some point will need to adjust that thought process. A correction on HRC is actually a healthy thing right now, and all that throwing out an increase that doesn’t stick (and is unwarranted based on supply/demand) does is cause a loss of credibility.  Plus, the amount of volume at the mills tied up in index contracts makes the spot pricing somewhat irrelevant. If very few are buying spot, what causes the index to rise?”

The CEO of a large service center group told SMU this morning, “In my opinion, initially this increase will stop the slide, which was already slowing to a creep. No other announcements hve been made yet, but quotes are coming in higher this a.m. I do think the increase gains some real traction once lead times start to move into 2019. Depending on how low imports fall in Q4, it’s possible Q1 could end up being tighter than most people expect.”

When asked if the increase would stick, one service center steel buyer said, “Only if mills filled Q4 holes. I sure hope so. Very little import has been sold lately, so Q1 inventories should be predominantly domestic, which gives the increase, in my estimation, a 65 percent chance of sticking. We should know by the end of the month.”

A manufacturing company steel buyer said, “Word I’m hearing is $10-30 will stick for a short time, and this was a ploy to get tons off the sideline ahead of 2019 contract setting negotiations.”

Another service center CEO gave SMU his thoughts about the Nucor announcement: “There is no sound basis for it to stick other than scrap went up by $20/ton. It’s a cliche by now. Demand isn’t strong enough and supply is plentiful enough where it is a headline that will evaporate quickly.”

“Too early to tell, but my gut says only some will stick,” added one service center VP of Purchasing. “This is a move to stop the slide, not to necessarily increase price, in my opinion.”

When asked if the announcement would stop the erosion in prices, another service center buyer said, “It should, however, I think they should have waited until USW had signed contracts with USS and Arcelor. It might be awkward for those companies to announce a price increase before a settlement.”

A manufacturing company told us, “I believe it might [price increase stick], at least half, unfortunately. I hear some big buyers on the service center and pipe/tube side did some big buys. Nucor told me that on Monday they finalized some deals. Should establish the floor.”

Another manufacturing company was critical of the Nucor announcement. “I love Nucor’s $40 increase. Talk about price gouging and manipulation. I would love to hear their reasoning on this increase….”

It is Steel Market Update policy to adjust our Price Momentum Indicator to Neutral to allow the domestic steel mills to work with their customers, and to allow the steel buyers to see how firm the mill(s) are trying to collect higher prices. We will constantly review the status of negotiations between the mills and their customers and will adjust our PMI once we see a clear trend.

Latest in Steel Products Prices North America