New Round of Flat Rolled Price Increases Coming?

On Friday of this past week flat rolled steel buyers were lighting up the Steel Market Update inbox with questions or comments about a potential flat rolled steel price increase to be announced as early as Monday of this week.

Steel buyers and executives associated with the service centers were telling SMU that Nucor is rumored to be the leader and the question seems to be whether they will announce before or after ferrous scrap prices settle.

All Fingers Pointed at Nucor

“We are hearing that Nucor is considering an increase as early as next week. The mills are varied in their lead times but everyone is in at least July and are receiving a lot of inquiries from traditional foreign buyers or even traders! I don’t think Nucor cares if the market is strong enough now as between their contracts and downstream operations they’re pretty committed.” President of a large service center.

A Midwest service center shared their thoughts and observations with SMU, “I’m hearing the Nucor might be booked a little heavier than some of the other mills. Therefore, why wouldn’t they try and raise the price to slow the erosion. I don’t think there is enough strength for it to really stick but it might get the others to tap the brakes and decrease their speed. Also, they might get a few buyers off the fence. The delivery window I’m hearing is June HR and July for Cold Rolled and galvanized. The spot market is weak with the bookings and the contract business is going okay from what I’m hearing and seeing.  Our inventory is strong and the inbound flow from the mills are now on pace and they have basically caught up after being behind most of the first half.”

The general manager of a division of a large service center group told us, “Nucor has talked about a +$30 once June Scrap is settled.”

Would an Increase Stick?

“I have not heard anything regarding a price increase from Nucor yet.  That said, my sales rep is on vacation for two weeks,” said one large manufacturing company. “I don’t think this would stick – as we have been getting many “spot offers” from several domestic mills – much lower than current pricing including this week (Primarily from both A/M and USS.).  Lead times are about 4 weeks and if we push, we could get it sooner….”  

The president of a Midwest based service center told SMU, “We are hearing rumors and it certainly makes sense considering the increasing velocity of recent price erosion As well as they predictable tactic of timing said announcements prior to the CRU set dates, which in this case is 2 weeks away; so, may not actually have enough fortitude to reverse the pricing trend, but enough time to at least stop further price decline before 6/14.”

He continued with, “If they announce they would say what-$30 increase or try to set at $620 I don’t think there is enough optimism to achieve that. But with 232 on the horizon, and once July books up, coupled with if the Mills reassert their concerted discipline to hold firm rather than the Algoma’s or SDI when they have a hole going out and undercutting everyone by $30, then there is a chance for price reversal. Inventories are getting a little tight-and there are holes both at the distribution level and the OEM level.  But no one wants to buy despite that because of the belief of continued erosion.  And JIT demands are getting difficult to meet. Regular quotes are coming in at $580 for basic spot needs, not quantity. I believe quantity gets you a modified contract discount-meaning if I was looking for several thousand ton I would probably argue that spot CRU is at 580 range, so if monthly set was today, I should be paying 550.  That is why I think you are seeing that [$550] as you low end of your range.”

SMU Note: Most service centers have at least a portion of their order book on contract and tied to either Platts or CRU indices. When negotiated, prices are confirmed as +/- the index average. In the case of the buyer in the paragraph above, they suggest that the average discount to the indices is $30 per ton and if in the spot market that is where the expectations are set.

However, there are many service centers who order book with the mill is almost entirely based on indexed base contract pricing (whether the steel is actually sold to a contract customer or into the spot market). These are “bucket” deals and they have a tendency to distort the spot market in weak markets (as tonnage that may have been going into a contract customer is redirected into the spot markets).

The service center GM mention above also told us, “It’s certainly possible that it [price announcement] stops the move down for a period. CRU advised that last week’s spot volume was high, so that tells me there was interest by buyers who were likely buying HR in the $27’s for volume, and that tells me that inventories must be low enough for that to occur.”

A Southern distributor told us, “I think market is strong enough to sustain in my region and with my customer sets.  I think inventories are too low and it will stick.  Lead times are what I would consider normal for most mills.   The capacity utilization rate looks solid, and I’ve been hearing a few service centers have been placing some decent tons on order domestically with expectation something will be done in Section 232 and NAFTA renegotiation.”

Many Buyers Do Not Believe Market is Tight Enough to Support Increase

A large hot rolled service center told us, “Other mills are saying Nucor is going to come out with a price announcement. I do not think the increase will stick. Although, it may slow down the bleeding. 2-4 week leads times at Mini’s and 4-6 at integrated mills.”

A steel buyers with an automotive based distributor told us, “I have heard the rumors [about a potential price increase] and I would expect it next week (after scrap negotiations) if it happens – though sounds like scrap might not help them justify it (if it is dropping slightly). I have trouble imagining prices really going up as we enter summer (unless 232 really takes hold) – but I don’t expect things to crash much more either…”

A Southeast service center said, “There could be one today [Friday, June 2] from Nucor, but yes probably next week.  Will be TOUGH for it to stick. While Nucor’s order book is solid, the rest of the mills are hungry.  Lead times are being quoted as 3 to 4 weeks but probably shorter than that.  Only thing making an increase stick is if something significant happens with the 232s or a line pipe job is released.”

SMU Note: The bottom line is buyers should be aware of the potential of a price increase announcement. Based on what steel buyers are hearing in the marketplace Nucor is the mill most often mentioned as having the strongest order book and positioned to make a price increase announcement.

Most buyers are going to watch ferrous scrap price negotiations which should be concluded sometime early to mid-week next week.

Buyers will also watch lead times which many buyers are telling SMU are relatively short right now (2-4 weeks on hot rolled and 4-6 weeks on CR and coated).

The wild card continues to be the Section 232 and, as has been suggested by some of the service centers with whom we spoke late last week, there may be a move by foreign buyers to begin putting on some domestic tons. We will get into this subject more during the coming week.

Department of Commerce Secretary Wilbur Ross has promised to have his recommendation to President Trump by the end of this month (June).