SMU Data and Models

SMU Service Center Spot Pricing: No Capitulation
Written by John Packard
January 13, 2019
Last week, Steel Market Update concluded our early January analysis of the flat rolled and plate steel market trends. One of the key areas we watch is how service centers are handling spot pricing of flat rolled steels to their end customers. Over the years we have learned that when service centers are raising prices, they are also supporting price increases out of the domestic steel mills. When distributor spot prices are being lowered, the service centers are not supporting any move (or potential move) by the domestic steel mills to raise pricing.
However, there is a time when more than 75 percent of the service center community is advising Steel Market Update that they are lowering spot prices. Our data suggests that at that point, the distribution community is suffering financial strain due to the lowering of inventory values. SMU calls this the point of “capitulation,” which means the pain is intense enough, especially if prolonged over an extended period of time, for the service centers to become supportive of any move taken by the domestic steel mills to reverse the direction. This usually comes in the form of a price increase announcement out of the steel mills.
Before we provide the data collected from service centers last week, let’s first take a look at what the manufacturing community was reporting on spot pricing from their service center suppliers.
As you can see by the graphic below, 87 percent of the manufacturing companies participating in last week’s analysis reported service center prices as being lower than what they saw two weeks earlier. This is a very small reduction from the last two surveys conducted during the month of December.
Service centers, on the other hand, saw a significant change with 55 percent reporting offering lower prices compared to two weeks earlier. As you can see, the distributors were inching very close to the point of capitulation during the month of December. It appears, for the moment, with the 19 percent point reduction, that service centers would be less supportive of any move by the domestic steel mills to increase pricing.

John Packard
Read more from John PackardLatest in SMU Data and Models

SMU Market Survey Results Now Available
The latest SMU Market Survey results are now available on our website to all Premium members.

UAW Strike Hasn’t Dampened SMU Buyers Sentiment Indices
SMU's Current and Future Steel Buyers Sentiment Indices both increased this week despite the United Auto Workers (UAW) union strike expansion, based on our most recent survey data.
Sheet Lead Times Mixed, Plate Plummets
While lead times for sheet again had mixed movements this week, those for plate collapsed, according to SMU’s most recent market survey.

US Hot Band Now Even Cheaper Than Imported HRC
US hot-rolled coil (HRC) prices fell further relative to imported product this week. Domestic hot band remains cheaper than offshore HRC as US tags continue to sink at a sharper rate than those overseas.

Service Center Shipments and Inventories Report for August
Flat Rolled = 54.1 Shipping Days of Supply Plate = 61.2 Shipping Days of Supply Flat Rolled US service center flat-rolled steel inventories eased back in August with stronger shipments. At the end of August, service centers carried 54.1 shipping days of supply, according to adjusted SMU data, down from 56.1 shipping days of supply […]