Steel Buyers React to New Prices, Demand Levels

Buyers of flat rolled and plate steels provided insights into the market to Steel Market Update throughout the day. On the flat rolled side, steel buyers seemed to be resigned to paying higher prices. Flat rolled price quotes are firming at the domestic mills, and the mills may well achieve their desired minimums of $500-$520 per ton base hot rolled and $700-$720 per ton cold rolled and coated steel. Plate steel prices appear to be stuck at $580-$600 per ton delivered.

SMU is hearing ferrous scrap prices will be up this month. This is creating a squeeze on mill margins. One scrap dealer told SMU this afternoon of prime grades being sold in the $315 per gross ton delivered to the Midwest mills for May (shred in the $275-$280 per gross ton range). Using a purely ballpark $150 per ton conversion number to melt and roll to a hot band, a mill’s cost would be about $450-$465 per ton. It does not make much sense to take too many $440 or below orders…. Thus, the mill sales marching orders are to firm up pricing.

Buyers had plenty to say regarding pricing, demand and what they think will happen over the coming weeks and months:

“They’re going to try [mills to raise price]. With scrap going up there is no incentive to sell cheaply. We’ll do as well as most, but a downshift in the economy as enormous as we’ve just witnessed will take longer to recover from due to energy being hindered for some time and questions of the virus lingering longer than we all had hoped.” Southwest service center

“We expect May to be only slightly better than April, as regional economies slowly open up. I think there will be a short-lived bump on HRC; however, the economy remains so weak, I think any upside will be limited. Recovery by year’s end seems very unlikely.” Midwest service center

“Price [for Galvalume] was $30/cwt base prior to announcements. I hear $33 is the new base. Again, I had a mill let me know this was negotiable if I had something to offer. But I really do not have tons to offer currently. May at best will be the same, but probably about 10-20 percent lower in volume. The mills’ price increase won’t stick, although they will get something. The mills are trying to stop the slide and impact the indexed contracts that they all have in place. No recovery by year end, but I also do not feel it will fall apart. I believe we will be down 10-15 percent year over year. When will auto return and what volume? Energy is key. So, without these two industries returning, is allocation a consideration? What if auto returns to some lesser degree? Most feel allocation is possible.” End user

“Higher business levels in May as most of our OEMs are back, having been down for at least some time in April. I think this latest increase was a bit premature. I think lead-times are currently too short and don’t allow much leeway for the mills to sit back and wait. Buyers appear to be able to wait. However, once automotive companies return and are more or less stable, than all bets are off and mills should be able to increase prices. I’m not optimistic about a recovery by year end because our industry and all others will ultimately reflect what’s happening in the broader economy. The vast majority of experts believe the U.S. economy can’t/won’t return to pre-Covid levels unless and until a vaccine is available and in wide use among the population. Everything’s tied to the pandemic now, and I think the biggest issue(s) are what happens with the automotive market, and in turn that will heavily impact what happens with the integrated mills. I believe there is serious risk of automotive recovering more slowly than hoped, and it could threaten the integrated mills’ solvency.” Central USA service center

“Half will stick maybe [price increase]. If you want HR or galvanized, you’re going to have to pay the piper.” Service center

“They will stick for a few weeks [price increases]. But the demand is not there for them to stick for any length of time. My guess would be first-quarter 2021 [for demand to return to pre-virus levels].” Midwest service center

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“Demand will drive as to whether the increases stick, but the mills have rationalized supply to the point of what will likely become a shortage in certain markets (CR?). The mills needed to do something before CRU pegs on the 13th for June contracts or they’d have been stuck with $441 HR (or less). That is basically their cost to produce a hot rolled band, and recent mill earnings indicate that a Q2 worse than Q1 will not be well received. Churchill said to never let a good crisis go to waste…. Covid created this particular crisis, but the mills will create one for the steel market if they can stand united with supply rationing until markets return. My thought is the mills will hold the line until CRU pegs and then they will begin negotiating price and taking orders again for a couple of weeks as the market re-levels and automotive returns. What happens when automotive returns will be anyone’s guess. The stampers have already begun preparing for the return and the first area to show signs of stress will be in scrap as the mills ramp into the demand. For cars to sell, though, either 30,000,000 people need to quickly go back to work or the auto makers will need to start greatly discounting vehicle prices in order to drive up sales. After vehicles, then there will be a housing issue to deal with. Government workers that were furloughed have ground the permitting and inspection processes to a slow roll, which may present other challenges down the road. Lots of speculative chatter also about a V- or U-shaped recovery. What we should really be concerned with is if either the V or U turns into a W, because that would mean that the full recovery time will not be short.” Manufacturing company

“Higher in May [demand for their products]. We are beginning to see the beginning of activity for automotive. Yes, prices will stick. With the amount of production the mills have pulled out of the market, it took very little to fill up the mills and that was before the automotive OEMs had even began to send in new updated release schedules. Between that and scrap gaining more and more strength due to lack of supply, I believe the increases will stick. How many more, if any, and how long this will last, we will see. Not optimistic by end of year [for their demand to return to pre-virus levels]. I think it will be off by 10-15 percent by Q4 compared to our original forecast for the year, which I think is realistic and we would be quite happy with that.” Service center

“Tough times for sure. Demand is way down. For us, I think the previous three weeks were the trough, but May and June will not be much improved. July is seasonally slow, but history is out the window this year. I look at October as our first chance for normalcy. Buyers are skittish, people are trying to avoid having inventory like they are trying to avoid the virus. We were down 50 percent in April, May will be a little better as we had several customers come back from Covid-related shutdowns. Continued ugliness into the fall. I told a guy yesterday – business is somewhere between winning the lotto and being dead, much closer to being dead.” Plate service center