SMU Data and Models
SMU Trends Analysis: Service Center Spot in Limbo
Written by John Packard
January 29, 2019
Last week, Steel Market Update conducted our mid-January flat rolled and plate steel market trends analysis. One of the areas of interest to SMU was how manufacturing companies and service centers would peg spot pricing coming out of the distributors to their end customers.
Prior to the New Year, just below 75 percent of the service centers reporting to SMU told us their company was lowering spot prices (compared to two weeks earlier). The manufacturing companies were almost unanimous with over 90 percent reporting their distributor suppliers as lowering spot pricing. We were close to “capitulation,” the point at which so many service centers were lowering spot prices, and in the process devaluing their inventories, that they would begin to support higher prices. Eventually, the distributors hope the steel mills raise prices (as they did this week) and attempt to break the downward cycle. So, are we at the point of capitulation?
Manufacturers Still Reporting Lower Spot Prices
If you were to listen to the manufacturing companies only, you would believe the service centers are giving steel away and at the point of capitulation. For the past two months, going back to the beginning of December 2018, manufacturing companies have been almost unanimous in their reporting. SMU found 86 percent of the end-users reporting distributors as lowering spot pricing. This is slightly lower than the 93 percent reported at the beginning of December, but not enough to say the trend (at least from the manufacturers perspective) has been broken.
Service Centers in a State of Limbo
Service centers, on the other hand, have been all over the board since Nucor tried to raise prices in early fourth-quarter 2018. We have seen the percentages of distributors reporting lower spot prices wander from 63 percent in mid-November 2018 to a high of 74 percent in mid-December. Since then, the percentage has dropped back to the 59 percent level measured this past week.
Most of the major mills have announced a $40 per ton increase ($2/cwt) on flat rolled products over the past eight days. With the yo-yoing of spot pricing at the service center level, the uncertainty will make it difficult for the domestic mills to collect higher prices right now, if past experience with our surveys is any indication. We will need to watch how the service centers react to market forces over the next few weeks to see if a clearer trend becomes apparent.
John Packard
Read more from John PackardLatest in SMU Data and Models
SMU Survey: Steel Buyer Sentiment Indices soften
SMU’s Steel Buyers’ Sentiment Indices eased this week, both approaching multi-year lows.
SMU flat-rolled market survey results now available
SMU’s latest steel buyers market survey results are now available on our website to all premium members.
SMU Survey: Mill lead times remain short
Steel mill lead times on sheet products contracted across the board this week compared to early July, while plate production times moderately extended, according to steel buyers responding to this week’s market survey.
SMU Survey: Most buyers say mills are open to negotiating prices
More than nine out of every ten steel buyers polled by SMU this week reported that mills are negotiable on new order prices. Negotiation rates have increased in each of our last three surveys following the early-June lull, reaching a record high this week.
Service centers: Mill orders recover in June
SMU’s Mill Order Index (MOI) rebounded in June after declining for three straight months. The gain complemented a modest boost in service center shipments for the month, according to our latest service center inventories data.