SMU Moves Price Momentum Indicator to Neutral

Today, Steel Market Update adjusted our flat rolled Price Momentum Indicator to Neutral. We are of the opinion, based on intelligence we are gleaning from steel buyers, that steel prices are in transition. We no longer believe prices on hot rolled, cold rolled, galvanized and Galvalume will decline over the next 30 days. However, a “neutral” indicator means prices could fluctuate up or down as the market adjusts to the strength of the domestic order books and the amount of supply available.

On Tuesday, Steel Market Update adjusted our flat rolled indices lower as buyers advised of deals being made late last week on most products. Benchmark hot rolled dropped $20 per ton with prices averaging $460 per ton ($23.00/cwt) FOB domestic mill.

The tone of the flat rolled steel markets began to change earlier this week. Steel buyers have been telling Steel Market Update the special deals being cut by the domestic mills last week have evaporated. The lowest hot rolled numbers being quoted are in the $450-460 per ton range and go as high as $500 per ton.

One large hot rolled service center told SMU this afternoon that Nucor and North Star Bluescope have pulled open quotes off the table. He said he had placed “sub $440” hot rolled last week, “…and we can’t get that anymore.”

A steel buyer in Texas told SMU that Nucor and Big River Steel were holding hot rolled at $480 and $500 per ton this week for small tons. The reason for the higher prices from both mills was because “…their order books have pushed out.”

With the Canadian mills being a non-factor in the U.S. markets, and with U.S. Steel, AK Steel (Cleveland-Cliffs) and ArcelorMittal all taking blast furnaces and other production equipment offline (including most recently the hot strip mill at AK Dearborn), the mills have done an excellent job of controlling supply.

A large northern-based service center told SMU, “It is quite impressive what they’ve [steel mills] done, keeping supply in line with demand.”

Order books have not collapsed at the domestic mills. A steel buyer sent us Steel Dynamics lead times today, which indicate the Butler facility is “inquire” on most products, while the Columbus mill is in late May (week of May 25th).

We have heard from multiple steel buyers that Nucor and ArcelorMittal are taking hot rolled prices higher. We heard of a possible Nucor announcement of $40 per ton. ArcelorMittal is being referenced as wanting a minimum base HRC number of $500 per ton ($25.00/cwt).

A $500 per ton number would relate to approximately a $40 per ton price increase above the SMU index average on HRC of $460 per ton.

SMU NOTE: After this article was posted, ArcelorMittal began advising their customers of new minimum base prices: hot rolled @ $500 per ton, cold rolled and coated @ $700 per ton.

Outstanding Questions – What is Demand? Where are Inventories?

There are two outstanding questions that need to be answered before the mills can force prices higher: Where is demand? And how many months of supply do the service centers have on hand?

SMU is working on getting answers to both of those questions.

Regarding demand, our conversations with service centers indicate that business for some in the month of April is not as bad as expected.

This afternoon we spoke with an automotive-related service center who told us dealer sales of new cars were not as bad as projected during the month of April. According to their industry forecast, they have the auto companies only producing a minimal number of cars during the month of May. However, they have the plants coming back to more normal levels in June and then being at pre-COVID-19 levels in July and through the balance of the year. The number of total automobiles and light trucks produced would be less than the 16 million originally anticipated, probably at a 14 million run rate for the year. But, remember, there are almost three months of little to no production included in that run rate.

A second service center was more optimistic this week than when we last spoke with them two weeks ago. They have no exposure to the automotive market, and they reported higher inventories than in the prior month. They also reported a couple of their major customers pulling more tons than anticipated. They are also seeing customers asking to buy more tons at the current price levels (the assumption being buyers recognize we are at lows not seen too often, and they recognize opportunities).

One Galvalume buyer told us their sales for March set a record for the company, and it appears April will break the March single-month record.

Inventories may not be as desperate as many thought going into the unknowns surrounding the pandemic. One service center executive told us his inventories were running about 3.5 months of supply, but he thought they would be much worse when the month began.

SMU will be reaching out tomorrow to our service center data providers to see where inventories, shipments, inbound orders, etc. are for the industry. We will have our “flash” report out to data providers next week. We will have our full analysis available to Premium members by no later than the 15th of the month.

Earlier this week the head of commercial for a steel mill told SMU, “For the record, I am not advocating a price increase. Just a likelihood that mills may stop chasing an ever lower number and are more satisfied with what they are getting and realize that the market may be close to balance relative to the capacity that is [operating] and the situation with scrap and other clean metallics.”

The expectation is for ferrous scrap prices to increase for May, which places a strain on the minimill margins at numbers below $450 per ton.

SMU will continue to closely monitor steel prices and will report on changes as they occur.