Service Centers/End Users Comment on Price Direction from Here

Steel Market Update went out to a couple of hundred steel buyers and executives today as we probe for information about flat rolled steel prices. At the same time we asked questions about price direction and demand. Tonight we will cover price direction (prior to AM increase announcement) and on Thursday we will cover their comments on demand. The responses we got back were almost an equal mix of OEM and Service Center/Wholesaler.

Just about all of the comments below were made prior to the ArcelorMittal USA base price announcement which hit most buyers on Tuesday afternoon. However, as you can see by the comments most companies anticipated the increase to be made either this week or next prior to ferrous scrap negotiations being concluded (they are expected to be higher in December).

Responses were almost unanimous from service centers that flat rolled steel prices will go higher from here but the opinions were more mixed from the End Users/OEM’s.

First, from service centers we heard:

“We believe that there will be another price announcement this week or next week. We are hearing rumblings.”

“Pricing is 540-560.  Waiting on the next increase.  Thinking it will come mid Dec.  With scrap up it will be enough for mills to increase soon.”

“Spot offers on “Plate” are few and far. Lead Times out into January 2017. Minimum half of the recent $100/t increases are sticking – ALL in some cases. Another increase is being discussed before January 01, 2017 to try and solidify these last two. Customers for the most part are accepting the much needed increases on Plate. The first half of 2017 is looking very encouraging on Plate for numerous sectors. 2017 over all is going to be much better than the forecast.”

“Something additional I feel might be beneficial to note.  While we buy from mills, we also buy from service centers.  The service centers seem to be reacting more quickly to this round of increases than they did during the first half of 2016.  I would figure this has to do with their inventory position (having less in Q4 2016 than they did in Q1 2016) or confidence in future increases.”

“I do think there is room to move up.  Prices are approaching a more reasonable level compared to world metallic costs.”

“Yes, we expect another increase announcement next week, prior to scrap settlements. Integrateds have a great sense of urgency due to input cost rocketing higher. Expect integrateds to announce a BASE price increase, rather than a $ per ton increase.”

“Yes, but peak around $600 and $720 and then level out for a while.”

“…It does appear that the price will continue to go up but don’t think current market conditions will support it for long and we will see some pull back in spite of your excellent explanation as to why their won’t be a pull back. We have lots Of request for pricing after the last announced price increase but few buyers as many in this market holding off on raising the price and one wholesaler even telling customers
There was no increase forth coming….”

“Yes; I expect an increase sometime early Dec.  No firm intel though.”

From the End Users/OEM’s we heard:

“Anecdotally, I believe the prices do not reflect the underlying economic fundamentals and therefore prices are overstated.  USD is too strong and will kill finished goods exports.  Housing construction is still growing, albeit more slowly.  Construction labor availability may put a limit on pace of growth.  Currency combined with major elections in France and Germany are likely to slow European demand in H1 2017.  China is an uncertainty with five year plan to reduce production capacity propping up market and Dalian exchange prices, but it is clear economic growth has slowed.  Will Chinese steel industry truly be disciplined in 2017? To answer your question, I expect prices to move lower over the next 3-6 weeks.”

“I do expect prices to move higher.  The mills will not take their foot off the gas until order flow stops.  That may not be for awhile yet, but hard to say.  A couple of other factors to consider:

1.) While at one point I expected energy demand to pick up and drive more HR, I am beginning to wonder, as oil has fallen off pretty substantially lately. Hard to read this one.
2.) A slowdown in automotive could very much impact HDG pricing, although with limited offshore options currently available, the drop off may be less than normal.
3.) Given current high price levels, I wouldn’t be surprised to see some idled capacity come back on line.”

“I continue to watch for capacity issues from the domestics and to determine if the threatened increase in price is driven by demand.   If by demand, then yes, I expect the prices to move higher from here.   If the demand isn’t there, I don’t see the price increases stick.”

“I was able to pick up my first quarter 2017 steel at a good price and am waiting to lock in for the rest of 2017. I expect there to be one more dip in 2016 before prices move up slowly throughout 2017.”

“I see prices continuing to rise as there is restocking needed after the new year, but I expect it to level off mid Q1 as the demand side is still soft.”

“Do you expect prices to move higher from here?  Difficult to tell.  Here’s why:

1) Demand still sucks.  No fundamental change other than softness in the auto industry.
2) Input costs are up almost uniformly.  Zinc and iron ore are up markedly.  Despite the fact that most mills with have risk management actions in place to minimize their exposure to input cost increases, they will still blame asked for increases on these.
3) Imports are drying up.  I still think November will be big and December a bit less so, as these represent tons bought this summer when pricing was +$160-200/ton to domestic pricing.  This will taper off however thanks to both increasing prices offshore and AD/CVD actions and the threat from the circumvention investigation.
4) Trump election.  There is lots of expectation that the new administration will push for infrastructure improvements.  Real or not, the expectation of future demand is emboldening the mills.

All told, I can see the mills going higher.  They need to be careful lest they push too high, too fast, as they have done before.  This time, however, if it happens I think a Trump administration can be shown what the mills are doing and despite their apparent bend toward protectionism, I think they can be shown the monopolistic ways in which the domestic mills perform and how that is not good for America or American manufacturing businesses.  We’ll see.”