Steel Markets

Final Thoughts

Written by Michael Cowden

How can SMU’s sheet prices go down shortly after a round of $50-per-ton mill price hikes?

Long story short: It’s because we’re capturing both pre- and post-increase pricing in our survey as well as in calls and emails with some of you.

And, as those of you who’ve been in the industry for a while know, sometimes a price hike is preceded by a period of deep discounting.

So let’s get into the nitty gritty of our price ranges and why prices are where they are this week. I’ll start with hot-rolled coil (HRC).

gearsSMU Price Ranges

The high end of our range, $930 per ton ($46.50 per cwt), reflects post-increase pricing. Recall that Nucor announced a minimum base price of $900 per ton for HRC while ArcelorMittal and Cleveland-Cliffs are aiming for as high as $950 per ton.

The low end of our range, the low $800s per ton, reflects pre-increase pricing levels. Before the increases were announced, even smaller spot transactions (think a few truckloads) were available in the mid/upper $800s per ton. Larger volumes were available in the mid/low $800s per ton, we’re told.

Also, we’d heard that pricing in the $700s per ton was available to those able to place 15,000-20,000 tons or more. Those aren’t repeatable spot buys, so they’re not reflected in our range. But some sources said those prices were still available in the marketplace, at least for now, and perhaps especially for customers able to leverage lower import offers.

It was a similar story for cold-rolled and coated products. In cold-rolled, for example, our average price is $1,100 per ton. The high end of our range, $1,150 per ton, reflects ArcelorMittal’s new list price. The bottom end, $1,050 per ton, reflects pre-increase pricing.

Signs of Stickiness

Will the increases stick, and what should you look for over the next week to gauge that?

For starters, I’d keep tabs on whether some of the deeper discounting we’ve seen continues and whether certain mills continue to offer what used to be called “foreign fighter” prices.

Also, we’re told that some mills have been delivering on time, or even early, and that lead times aren’t extending. If these increases spur more buying, we might see it first in lead times extending and in an end to early deliveries.

Another thing to watch for will be the direction of service center pricing, which we’ll release with our full survey results on Friday. We’ve heard anecdotally that some master distributors have seen a big increase in inquiries from smaller service centers who have come off the sidelines following the mill price hikes.

When we last surveyed the market, more than 80% of service centers respondents said they were lowering prices. An early indication of whether these hikes will stick will be if service centers begin following mills in raising prices.

Stop the Bleeding or Go for More?

One more thing to watch is what the impact of these increases will be. I recall instances in 2019, for example, when mill price increases at times coincided more with price declines than gains. I’d be surprised if that were the case now.

The question, as I see it, is whether these increases function like a round we saw in August of last year. Those succeeded in stabilizing prices through September, and then declines resumed in October and November.

Or is this like Q1, when there were good reasons for price hikes to gain traction: namely, low import volumes, stronger-than-expected demand, an unexpected production stop at AHMSA, as well as a raft of spring maintenance outages.

In short, is there a fundamental reason for these increases? Or are mills trying to time a potential buyer restock and make the most of it?

Here’s the part I don’t understand: How can price increases stick in an environment of increasing domestic capacity, steady demand, and lower import pricing? Is there some X factor out there – a new source of demand, a reduction in supply, a change in raw material costs, a change in trade policy – that we’re not seeing yet?

If there is, let us know. We welcome your feedback and appreciate your continued business.

By Michael Cowden,

Michael Cowden

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