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Yearlong slide in steel prices continues

Service centers might have to support the steel mills’ desire to increase prices

Yearlong slide in steel prices continue

Steel prices have slid for the better part of a year.

Steel prices have been on a downtrend for almost a year now, and there’s no clear end in sight. That’s good news for fabricators and manufacturers, but not so much for their suppliers. And without a healthy supply base and readily available steel, the steel-consuming industries would be in trouble.

Forty percent of the service center and OEM executives responding to Steel Market Update’s May 6 survey admitted they are confused by the current steel market and price direction. What’s causing all the confusion are the conflicting signals in the marketplace. The U.S. economy is the envy of the world, with record-low unemployment and a GDP that continues to surprise. Steel imports are not a concern, thanks to President Trump’s Section 232 tariffs. Domestic mills are cranking out tons of steel at more than 80 percent of their capacity, and many have announced plans to spend last year’s record profits on new capacity constructed over the next few years.

But look closer at the factors that influence steel prices. Demand is not as good as the GDP numbers might suggest. Steel’s major end-use markets, construction and automotive, show signs of slowing compared to last year. The looming threat of a trade war with China is weighing heavily on market sentiment. Fear and uncertainty are keeping many buyers on the sidelines, including service centers that are keeping inventories lean as they wait for prices to find a bottom. Ferrous scrap prices have declined in four of the first five months this year, an unusual turn of events, adding to the downward pressure on finished steel prices.

A Closer Look at the Data

Steel Market Update (SMU) gathers real-time pricing data from steel buyers every week. SMU’s Price Momentum Indicator was pointing to “lower” on all products as of mid-May, meaning prices were expected to decline further.

Hot-rolled steel prices have declined by more than 30 percent since peaking at $915/ton in July 2018. This year alone, the price has dropped by more than $100/ton from the $730/ton level in early January, despite two price increase announcements from the mills. The average price for hot-rolled coil was $625/ton ($31.25/cwt) as of May 15 (FOB the mill east of the Rockies). Lead times for hot-rolled were down to three to six weeks.

Likewise, cold-rolled had a high of $1,015/ton last June and began this year around $825/ton. It averaged $780/ton ($39.00/cwt) in mid-May—a 23 percent decline from the peak. Cold-rolled lead times ranged from four to eight weeks.

From peak to trough, the magnitude of the decline has been about the same for galvanized steel products. The benchmark price for galvanized 0.060-inch G90 was $858/ton in mid-May with a lead time of five to eight weeks.

Even steel plate, which has been the strongest steel market, has shown signs of weakening, with the average plate price down to $925/ton ($46.25/cwt) from a peak well over $1,000/ton and lead times as short as three to six weeks.

Service Centers Are Dealing

One telling indication of less-than-robust demand in the marketplace is that service centers are offering deeper discounts to move their inventories, according to data captured during SMU’s market trends analysis in the first week of May. As shown in Figure 1, 61 percent of the manufacturing companies responding to SMU’s survey reported that their steel distributors were decreasing spot prices. This is more than double the 29 percent who reported lower spot prices in mid-April.

Service centers, questioned separately from their manufacturing customers, corroborated the trend. About 72 percent of the steel distributors acknowledged they were reducing spot prices, more than twice the 32 percent in the mid-April survey.

This survey hints at a possible turnaround in steel prices. Service centers are nearing the point that SMU has termed “capitulation.” History has shown that when around 75 percent of steel distributors begin to report declining spot prices to their customers, that’s the point at which they will bite the bullet and begin to support mill price increases rather than continue to bid the market down to win low-margin orders. SMU is carefully watching the data from manufacturing companies and service centers regarding spot pricing, inventory levels, and demand for clues as to how far flat-rolled and plate prices can fall and how soon we may see a rebound in pricing.

Some Insightful Observations

Recent comments from OEM and service center executives offer a sense of the current—somewhat pessimistic—market sentiment:

  • “Demand is good, the economy is good, imports are low, yet there is no price resurgence. Why are prices dragging?”
  • “Although the economy is being expressed as very positive, you wouldn’t know it by my order book.”
  • “With cheap foreign imports supposedly on the decline, I see customers buying finished product at or lower than my new domestic or foreign pricing. I simply cannot get a feel for where I should buy or sell. There is no consistency, rhyme, or reason.”
  • “Supply is outstripping demand right now.”
  • “The market is soft and automotive schedules are down with July plant shutdowns looming.”
  • “Tariffs are not working; we have seen no hike in business as a result of them. Margins are under heavy pressure as a consequence of increased cost.”
  • “The market is trying to find a bottom. Demand also seems to be slow, especially for service centers. I suspect more business is going mill direct.”
  • “The mills are still trying to push the pricing up, but there is not enough demand to make it stick. This is causing a yo-yo effect.”
  • “Overall supply and demand, along with lean inventories, would suggest a stronger price market. Fear is keeping buyers on the sidelines. Assuming demand continues, they will have to come back and buy soon, firming up prices.”
  • “No one is buying ahead because they feel the market will continue to price soften or their overall business conditions are deteriorating.”
  • “Prices are all over the board as mills are not full yet, and some are trying to mask it. I think prices will bounce along, deals will be made, and sooner or later more import will start coming in as the U.S. market is better than the world market.”
  • “Although there is still some economic optimism, macro numbers suggest the economy’s leveling off, at best. Supply and demand will take over steel prices.”
  • “Domestic competition has replaced import competition, and it’s more severe and more difficult to read.”
  • “Too much hot-rolled capacity has been brought online in the past 12 months. Expect prices to continue to fall during May before stabilizing. Major steel consumers are seeing a slowdown. Auto, ag, and commercial construction have been delayed due to extremely wet weather in the Midwest this spring.”
  • “I’m not confused, but frustrated. The domestic mills have failed to create pricing credibility in a captive market. By letting prices swing wildly, they decimate service center margins and create uncertainty in end-users’ minds, keeping them on the sidelines. A unified commitment to price stability would help all sectors in the chain, producers, distributors, and end users. Will the mills ever learn?”
  • “There are so many factors that could change the market and any one of them could happen at any time. You just have to stay in touch with the market and have valuable suppliers who will tell you what you need to know to make good decisions.”

Upcoming Event More than 1,000 industry executives are expected to show up for the 2019 SMU Steel Summit Conference, Aug. 26-28, in Atlanta.

About the Authors
Steel Market Update

John Packard

President/CEO

800-432-3475

John Packard is the founder and publisher of Steel Market Update, a steel industry newsletter and website dedicated to the flat-rolled steel industry in North America. He spent the first 31 years of his career selling flat-rolled steel products to the manufacturing and distribution communities.

Steel Market Update

Tim Triplett

Executive Editor

Tim Triplett, senior editor for Steel Market Update and the former editor-in-chief for Metal Center News, can be reached at tim@steelmarketupdate.com.