Steel Buyers Discuss Pricing, Demand & Foreign Steel

Written by John Packard

There seemed to be three subjects on the minds of the steel buyers and executives with whom Steel Market Update spoke with over the past twenty-four hours: steel prices, demand for steel products and foreign steel (both offers and threats of dumping suits).

Since it is Tuesday and we publish our flat rolled steel price series on hot rolled, cold rolled, galvanized and Galvalume this evening, many of the conversations began with a discussion of the latest price offers being touted by the mills out of the United States and Canada.

Steel Pricing

“Well-no real pricing intel as waiting to hear back on some inquires before mills for pricing. When I softly asked re 23.50, all seemed to say not them..,” is what one service center executive told SMU this evening.

Others seemed to have no difficulty getting pricing at, or below the $470 per ton referenced by the executive above. A manufacturing company reported a domestic mill as selling hot rolled into the Houston market at $440 per ton as part of a “foreign fighter” campaign. We spoke with a Houston based service center who told us he too was aware of the “rumors” of the $440 number and would be searching to buy at that level if they had tonnage to place.

In the Plains states we heard mill pricing as being “$470-$490/ton, and lower for volume (1,000+ tons).” That same service center went on to tell SMU, “Getting a sense that downward momentum is slowing as prices creep into the $465-485 range. Mills showing a bit more patience this week and less desperate. I think the mills are getting much more inbound inquiries now, even though they are coming with “crazy” asking prices (low $400’s). The good news is, buyers are at least coming out of the woodwork, so it might just be a matter of time.”

In the Midwest we heard from a number of steel buyers that the common offers for hot rolled were $480 per ton for minimal tonnage and $460 per ton if there were some tonnage involved.

An Upper Midwest service center told us, “Only saving grace in this market is the robust demand.  Allowing us to flip our high priced inventory fast to get into the lower cost. Nothing has really changed in the last few weeks.  Have we hit a low?  If not, I sense we are pretty close. We can buy for 23 cwt on big tons from some mills.  Others are holding out for 24 cwt.”

A large manufacturing company told us the offers they were seeing on hot rolled this week was $23.50/cwt ($470 per ton) and that the most recent foreign offer they saw was $23.00/cwt ($460 per ton) last week or, $10 per ton less than the domestic offer which they reported as coming from two mills.

When speaking of cold rolled and coated products we found the low end of the mill offers to be at a $29.00/cwt-$29.50/cwt base although there are a number of mills who are keeping their base price in the low $30’s. One mill told us that their March order book was 80 percent full and they were holding at a minimum base of $30.50/cwt. A mill rep told us that their galvanized was being sold closer to $31.50/cwt and Galvalume at $32.00/cwt. All of these are before taking into consideration any negotiations on freight, coating or other extras.

Steel buyers and executives were mixed when it came to how close the market was to the bottom of the pricing cycle.

“So many mills are hungry,” one service center executive told us. “The order books are still weak. With bundles [prime scrap] being reported by AMM at $236 plus $150 per ton for processing gives you a mini-mill cost [marginal] around $19.30/cwt… I think this [drop in pricing] may take a little longer to reach the bottom.”

A second large service center told us they were continuing to reduce inventory and complained about their competition. “The competition is using current numbers as their cost base in order to blow off old inventory.” The idea being to sell current material based on replacement cost and not based off of the actual cost of the material on the floor. They went on to say that even with service centers blowing off inventory, “I think it will take a couple of months yet [to reach the bottom in pricing].”

A third service center located in the Chicago area was more optimistic about prices changing direction sooner rather than later. “I see the pendulum swaying back to the domestic mills… Now is a good time to buy domestic. Within the next few months things should change. The length, duration of this cycle is hard to predict.”

Demand Continues to be “Decent”

We heard from service centers, wholesalers and manufacturing companies around the country that demand for their products continues to be decent. We had a number of companies who told SMU that their February shipments were excellent and that they anticipate continued good news as the year progressed.  

A large service center associated with the automotive industry told us their customers were convinced 2015 will be a 17 million unit year and their purchases are reflecting that optimism.

Not everyone was optimistic. A wholesaler in the east told SMU that their business was OK but their volume was down. They were concerned about the rumors of the economy slowing. Even so, their large HVAC mechanical contractor customers “…are optimistic about where business is going.” Their customers are expecting a good second half 2015. This buyer’s concern was what comes after this spurt of commercial construction runs its course?

On the east coast a service center told us, “Business levels are on the quiet side, which does not play well for those of us who have inventory.  But the weather is changing and we see the faucet being turned back on.”

Foreign Steel: Still an Issue and What about Dumping Suits?

One service center executive told SMU in an email, “I hope the domestic mills read your price spread data between domestic and foreign offers in the newsletter, and decide to quit lowering their prices. It appears domestic prices are low enough now that buyers are much less willing to go foreign, so perhaps they need to catch a breath and be patient. It’s very likely orders will come anyways…”

Other buyers also pointed out that the foreign price offers, especially to those inland and away from the port cities, are higher than domestic steel price offers.

One exception is Chinese cold rolled and coated offers. We found the perspective of one trader regarding the competition offering the Chinese material at low prices interesting, “I will say that if and when these long expected rumors of AD suits become fact, the dwindling number of traders still in the Chinese game are equally responsible for the demise of their supply base.  The levels I’ve seen in coated and CR are so far below the market that you have to question the common sense of the traders.  Positioning your import product is a balancing act… enough below market to attract volume, sure.  However $5-8/cwt under is a sign of poor trading skills. They’ve destroyed their market, and the speculative positions many took are biting them where it should.  The only rationale for this behavior is an uneasy feeling there remain only a few delivery windows left before the US industry  responds.  The rest of the world has.”  

There continues to be a concern regarding the threat that there will be dumping suits filed against cold rolled and coated products. We heard on more than one occasion today, “It’s not a question of will they [the mills] but rather when will the dumping suits get filed.”

We heard opinions ranging from April to August 2015.

We will continue to cover this subject as the picture becomes clearer (or not).

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