Steel Products

SMU Steel Price Conversations Uncover Skepticism

Written by John Packard

I spent today working on two projects. First was contacting and communicating with flat rolled and plate steel buyers in order to get a sense of the current spot price offers/transactions and where the markets are heading over the near term. The second project was working on the 2020 SMU Steel Summit Conference. As with many of the projects I am involved, many of the conversations covered both topics as I have been soliciting suggestions from steel buyers regarding what topics are expected to be key by the end of August, and what speakers would the industry like to see. I will speak on these topics in my Final Thoughts this evening.

There is never a simple answer when speaking to steel buyers. Especially when it comes to pricing. I guess that is why this business is so interesting.

We picked up comments like this one from the general manager of a middle USA service center who reported spot hot rolled as being $600 per ton ($30.00/cwt base), and cold rolled and galvanized at $780 per ton ($39.00/cwt base). He told us, “Market is still in flux and moving higher, so we need to see if/where it pauses/stabilizes before being able to forecast future direction.”

John Packard Summit 18My conversations have identified companies – end users and service centers – who made opportunistic purchases in October prior to the mills announcing prices (or right at the beginning of the announcements). I am being told by these companies they will not need to purchase more spot steel until late February or March. I don’t have a good feel for what percentage of the companies with whom I speak made speculative transactions, but it is not an insignificant number.

A Texas based company spoke about foreign steel and what they think will happen in the coming months: “I think the market will continue to rise through the end of Q1, then start to decline as initial spring demand stalls. Import offers are starting to get in line for buyers to start seriously considering a potential restart of an import buying strategy.” 

From my perspective: Restarting a foreign import buying strategy, if implemented, will create issues for the domestic mills down the pike. As buyers transition tons away from domestic sources, they are not necessarily telling their current suppliers of their intention to spread their business. This creates holes the domestic mills will not be expecting. Something to watch over the next few months.

The buyer at a large service center group told SMU, “We have not bought any spot in 2020. Our inventory is strong, and we can buy spot from other service center cheaper than the new mill pricing.”

From my perspective: Another issue for the domestic steel mills. If the mills push prices high too fast, many service centers can buy from their competitors (or distributors who specialize in selling to service centers) cheaper than mill replacement cost. Over time, holes will develop. Question is what comes first – holes in inventories of the distributors servicing the service centers or mill lead times that begin to falter and the mills begin discounting?

This same service center buyer gave us his perspective on how high steel prices can go: “I think $600 is the first test. Will the market support $600 short term, and more importantly, will the market support $640 or higher? I don’t feel the market is strong enough to support anything over $600, short or long term. If scrap goes sideways or down in February, I believe pricing will quickly stall.” ARTICLE CONTINUES BELOW

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I heard the scrap comment today from a few steel buyers. Something we will need to watch closely as we head into February (which is only a couple of weeks away).

Another steel buyer gave us these thoughts: “I cannot see the mills getting more than what is already announced without a traumatic event. It will be a tall task to collect all of what is announced. However, in the near term, lead times are strong and contract buying is robust. Until contract pricing catches up with spot pricing, we would expect the mill order books to remain pretty populated.”

From my perspective: There does seem to be some skepticism while at the same time support for the higher prices right now. SMU is keeping our Price Momentum Indicator on flat rolled pointing toward higher prices.

Plate buyers seem to be split on whether the market is getting stronger or if prices will falter as soon as scrap falters. We will watch lead times, negotiations and market pricing very closely in the coming weeks for signs of a change.

John Packard, President & CEO, Steel Market Update

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