Steel Buyers Coming into the Spot Market Should Expect Sticker Shock

Written by John Packard

We have received a number of calls from sellers of steel asking for our help in trying to explain, from an independent source, why flat rolled steel prices are moving higher and why we expect this trend to continue. When looking at the history of Steel Market Update, our steel market intelligence publication was actually begun as a forum for our founder, John Packard, to communicate with his steel buyers in an effort to explain why markets were changing back in 2004.

Volatility is always difficult to explain to companies that do not stay connected to the markets on a daily basis through publications like Steel Market Update (a reason to suggest to your customers that it might be a good idea to read SMU regularly).

Steel Market Update has no incentive to push the market one way or another. We have been bullish on the market for a number of months and we continue to be based on the strength of our SMU Steel Buyers Sentiment Index which came in at a record high at +70 (more about Sentiment in another article) and the steady flow of orders moving into the steel mills.

The key issues driving steel prices at this time are:

1)    Supply constraints. We have US Steel Granite City and Fairfield steel making facilities closed. AK Steel Ashland hot end is also closed. In Canada we have two mills in creditor protection and for sale (Essar Steel Algoma and USS Canada).

2)    Trade Suits. There are trade suits on all flat rolled products: hot rolled, cold rolled, coated steels. We are through the preliminary stage and still have the final determinations and ITC ruling to come. This has created uncertainty among traders and many countries have stopped shipping foreign steel to the United States because they are one of the countries named and they have exposure/risk.

3)    China. Over the last few weeks prices in China have skyrocketed and China is the supplier to conversion mills around the world. The net result being countries not hit with dumping suits don’t know what their costs for substrate will be and they are pulling offers. Foreign prices are up $100-$160 per ton compared to where they were one month ago.

4)    Inventories – especially at service centers. Inventories were out of control last year and way too high. This has changed and now service centers need to reorder, pushing lead times and prices.

5)    Lead Times are Extended. Lead times have moved out an average of 3-5 weeks during the past two months. As lead times extend buyers must buy more inventory (pushing lead times even further).

6)    Mill input costs. Ferrous scrap prices are settling up $45-$55 per gross ton for delivery during the  month of April. No relief is expected for May. At the same time, other costs are also up including iron ore where 62% Fe fines were reported to be at $53 this morning in China (TSI).

NLMK USA announced a $40 per ton ($2.00/cwt) price increase on Tuesday. Since the beginning of December they have announced $170 per ton in price increases with the vast majority of those increases sticking (due to the reasons mentioned above). The expectation is for hot rolled base prices to be in the $480-$500 range and perhaps even a little higher with coated steels expected to be $33.50/cwt-$35.00/cwt base prices plus extras. These are our “best guess” opinions. For the exact number you may be quoted out of the domestic mills please contact your mill supplier.

Demand is not part of the equation right now. This is what is causing an issue with many customers. They don’t see their business as “booming” and therefore they are holding off making commitments (and will end up paying more).

How long will this last – until at least early to mid-summer which is when the final determinations on the dumping suits will be made. The final determinations may free up some foreign tonnage that is sitting on the sidelines.

So, price announcements or no announcements it doesn’t really matter – steel prices are going higher from here.

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