HR Price Drops & Price Momentum Indicator Now at Neutral

Steel Market Update (SMU) has been struggling to get a clear view of the current market situation as we attempt to identify which direction we see flat rolled steel prices going from here. We have been receiving mixed messages over the past two weeks and we have been advising our readers to remain vigilant and stay close to your suppliers as well as those who are providing you independent market intelligence.

So, this is how we are seeing the flat rolled steel markets right now. Benchmark hot rolled has been weakening over the past one to two weeks. Not every mill is reacting to the market and not every plant within a mill group is reacting the same. We have seen multiple price points indicating hot rolled coil base prices in the $600-$610 with some reporting spot prices (with tons) under $600 per ton.

We are changing our range on hot rolled pricing to $600-$640 per ton with an average of $620 per ton. This is $5 per ton lower than what we reported on Tuesday evening and $10 per ton lower than what we reported last week.

We are also changing our Price Momentum Indicator on hot rolled to Neutral from Higher due to the new data points and the number of mills reported to be at the lower numbers.  One large service center buyer told us about the HRC market, “Seeing some nervousness with a domestic integrated mill offering small spot tons at $610 and $600.”

A manufacturing company sent us an email on Monday with the following message, “I wanted to pass along our most recent spot price quote. We received a $40/cwt base price quote on Friday for 1000 tons [cold rolled]. When I asked about the market not holding the most recent increase the mill hesitated and then stated it was more volume based and that they wanted to help us out. This is from the same mill that provided me the $41.50/cwt that I mentioned on January 12th.”

We had a detailed conversation with another large service center who is confused by some of the information he is receiving from one of his steel suppliers. He told SMU one of his suppliers sent an email reporting March was sold out and that April would be at “inquire only.” In the same email the mill lowered spot prices to $30.00/cwt on hot rolled ($600 per ton) and $40.50/cwt base on cold rolled and coated ($810 per ton).

The service center executive then posed this question to SMU, “Why would you lower your price, for inquire-only spot volume, that’s over 8 weeks out? So, perhaps that is an example of them competing with BRS? – I have no idea.”

He then continued by saying, “Hard to see what changes the dynamics in the near-term which would cause lead-times to extend, which is the primary driver of increased prices in the US. Throw in much lower Scrap prices and you’ve got the making of a price pullback in the making. I don’t foresee a big collapse in price, but a correction down to say $560-570 seems very reasonable and wouldn’t cause problems.”

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We also can no longer ignore the tonnage being produced (and we assume sold) out of Big River Steel. Steel buyers have told us some of the original tons were sold for $28.50/cwt ($570 per ton) and recent offers are reported to be at $600 per ton ($30.00/cwt). The other steel mills are going to be forced to compete if they want to maintain their share of the hot rolled market. BRS will be running cold rolled and we spoke to a large galvanized steel buyer who told us they have trial orders on with BRS for April galvanized. With the other mill lead times now in March and April BRS is a legitimate competitor and threat to their business. SMU contacted BRS to see if we could get confirmation of the steel prices we were hearing in the market and we were told that the mill does not comment on pricing.

We also heard from one of our sources that Acero Junction is now producing hot rolled coils and production of “prime orders” will begin very soon which will also pressure HRC prices in the Ohio Valley.

SMU sources advised us this afternoon that ferrous scrap settled in the Detroit market today down $25 per gross ton on shredded and cut grades and down $10 per gross ton on prime grades (bundles/busheling).   

Mike Marley of World Steel Dynamics pointed out that the mood of the scrap industry has been dark recently due to weakening export prices to Turkey. He told his readers, “Some dealers are now talking about a potential decline of $30 or $40 per gross ton in the obsolete grades like shredded scrap and heavy melt and a sympathetic slide of $10 or $20 per ton or more in busheling and bundle prices.”

Some markets may not be hit as hard as you can see by the settlement of the Detroit market at down $25 and down $10 on shred and prime grades respectively.

The decline in scrap prices is weighing on both steel buyers and the steel mills as both sides consider what is a “fair” price should scrap decline in February.

Today we produced our steel mill lead times and mill negotiations data. We saw lead times as flat to down and negotiations are in transition.

Our survey also found steel buyers split on whether or not there will be any more price increases between now and the end of February. One month ago it was almost unanimous, buyers expected the mills to raise and collect price increases.

Steel Market Update has collected weakening prices in hot rolled from many sources. Fewer sources reported weakening cold rolled prices and we only have a couple of sources saying the same for coated products.

We are moving our Price Momentum Indicator to Neutral. This means that we sense the market is in transition but there is no clear evidence that the market will move significantly in one direction or another over the next 30 days.

A steel executive put it to us this way this afternoon, “It’s like last year all over again. People are buying [service centers selling spot to their customers] at ridiculous levels. In a strong market, there usually isn’t so much excess inventory available. I’m not bullish and I am not bearish… I would be happy if prices just moved sideways from here.”

So, we will watch and wait to see if the market provides us some clear market pricing guidance in the coming days.