SMU Data and Models

Firm “Cycle” Bottom, More Price Increases to Come; SMU Momentum?

Written by John Packard

The domestic steel mills have been able to put a floor on flat rolled steel prices since Nucor announced their $40 per ton price increase on Jan. 28, 2019. Now that they have a firm floor, the mills are slowly moving prices higher. In the process, they are very slowly shifting momentum. Steel Market Update is of the opinion over the near term (next 30 to 60 days) that flat rolled steel prices will move sideways to slightly higher off the recent cyclical low.

cliffWe are not of the opinion that flat rolled prices will quickly move higher from here. However, from a risk standpoint, the chances of prices dropping $20-$40 per ton over the next 30 days are much lower than prices moving higher by the same amount. We anticipate a new price announcement, which many steel buyers believe is imminent (some believing it could come within the next 24 hours).

At least one steel mill is already beginning to “soft sell” a potential second price increase. The soft sell was an attempt to take hot rolled from $680 to $700 per ton ($35.00/cwt), but the salespeople were “soft selling” the number, meaning the mill would not turn back an order at $680 per ton ($34.00/cwt).

A large service center told us pricing right now is “messy” but moving up. There is an issue with JSW Ohio trying to increase their order book now that the EAF is up and running. JSW may hold steel prices a little lower than they otherwise might have been over the near term, but with iron ore going higher on the international markets and scrap expected to move higher once March settles, there should be momentum building to take numbers higher come March.

Here is what one of our service center sources told us this afternoon: “It appears that there may be some real-time momentum building. SDI and Nucor are sending out lead times that reflect mostly an ‘inquire only’ for spot needs. There will be an additional price increase announced within the next 24 hours, with an expectation of +$40/ton. Scrap price expectations at the moment are for an increase of +$20/ton in March, and slab prices out of Brazil for April are up $20-$40/ton. Now, I still think we’re in a transition phase, and it’s indeed possible that we see the market get back above $700/ton in the next month, and possibly higher afterward if some other elements come into play. At the same time, if prices stayed more stable, that wouldn’t surprise me either….”

Another large hot rolled buyer also told SMU that the market was “messy.” He said, “It’s still messy because not everybody has full order books yet. We are waiting to see this week’s [lead times] to see if they have really made a move [lead times have moved out].”

Steel Market Update is conducting one of our flat rolled and plate steel market trends surveys this week. We are finding companies reporting the domestic mills as still willing to negotiate, but from a new bottom level.

We are also finding more service centers reporting their company as dropping their spot prices, as opposed to raising spot pricing.

On the supportive side of prices possibly moving higher from here, our SMU flat rolled steel and plate steel inventories both moved lower as of the end of January. Our flat rolled number of months of supply dropped to 2.3 months. If you would like more detail about service center inventories, contact us to become a data provider:

From the steel mills, we are hearing of some strength in the order books. One mill told us, “…Have to make a move on price as lead time is stretching beyond my level of comfort. Have not decided yet, but my guess is there will be nothing under 40 [$40.00/cwt] base by the time we are done. At least as our ask price. Whether or not people will pay it will be up to the market, but where I see it is that the market is due for a true +40 to +50 from where it was a few weeks ago.”

The SMU Price Momentum Indicator will remain at Neutral perhaps more in anticipation of a new round of price increase announcements, which would be considered normal policy by the mills as they struggle to move prices higher. We do not believe prices will go lower from here. We are of the opinion that prices will move sideways to slightly higher over the next week. We will continue to evaluate pricing and the market every day until we get a consensus on the direction prices are headed.

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