Service Centers Take Another Step Closer to “Capitulation”

Flat rolled steel service centers who responded to last week’s SMU flat rolled and plate steel market trends questionnaire are reporting in increasing numbers their service center as lowering spot prices to their customers. One month ago (early November) only 32 percent of the flat rolled distributors were reporting lower spot pricing to their customers. Now, we have seen that percentage grow to 72 percent. This is within a hair of what SMU has identified as the point of capitulation. In the past we have suggested that when 75 percent or more of the distributors advise their company as dropping steel prices, that was the inflection point or capitalization point. This is the point in time when so many service centers are dumping inventory at ever lower prices, thus devaluing inventory, that the process is putting the company at risk. It is the point of pain that can only be relieved by a change in pricing direction, which inevitably comes from the domestic steel mills raising prices.

What SMU does not know is how the markets will react when the U.S. government is so involved in setting pricing through tariffs, along with antidumping and countervailing duties.