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Steel prices pointing up for 2014

Oct 31, 2013 | 08:00 PM | AMM staff

Tags  steel, rebar, Nucor, steel sheet, 2014 forecast, AMM Staff

A strengthening of flat-rolled and rebar steel prices and a general steadiness on many other products have gotten the fourth quarter off to a more promising start for a number of steelmakers and distributors.

Steelmakers initiated a new round of increases in October, effectively moving prices up some $30 to $40 per ton to $670 to $680 per ton ($33.50 to $34 per hundredweight) for hot-rolled and $770 to $810 per ton ($38.50 to $40.50 per cwt) for cold-rolled coil and coated sheet.

As the end of the year approaches, prices are remarkably close not only to where they began the year but also to average prices for 2012. That has surprised some, who believed that 2013 could be a disastrous year for steel pricing.

“Things are going up, for now anyway,” a Midwest service center source said. “The mills are doing everything in their power to keep the numbers up, and ... I don’t think things are going to fall apart.”

Yet market players remain divided over where steel sheet prices will move in the next few months, with participants continuing to cite stability in the sector, sources said.

Moving forward, there doesn’t seem to be much around the corner to indicate lower pricing in the short term, market participants said.

“Demand is good and customers still need to buy for the future, especially with inventory levels so low,” a mill source said.

Rebar demand is strong enough to support price increases announced by major mills in mid-October, according to producer and buyer sources, as a seasonal uptick in orders and diminishing imports drive rebar mills’ sales. Charlotte, N.C.-based Nucor Corp. announced a price increase of $10 per ton (50 cents per hundredweight) Oct. 14, with Tampa, Fla.-based Gerdau Long Steel North America following suit the next day. For nearly five months prior to the increase, the market saw unusually steady prices at around $645 per ton ($32.25 per cwt) as mills shed their raw material surcharge and held most prices level.

The increase was a long time coming, mills said, as margins remained low despite overall softening in scrap prices.

Many service center sources said they are holding off buying until a clearer picture emerges. Others said that this quarter will be indicative of whether prices remain strong or fall apart in the coming months.

“We’re in a few critical weeks right now and people are testing the resolve of the mills to keep prices up,” one northern service center source said. “I hope they stick, and there’s certainly no need for them to come off of the prices, but we’ll see what happens.”

An increasing number of service center sources told AMM that they have moved to buying on an “as needed” basis, with many resolving to refrain from placing new orders until they have a commitment from an end customer.

Mill lead times have pushed out, particularly on coated material, which some said could indicate strength in the sheet market.

“There’s a lot of pushback from end customers who don’t want to pay higher prices, but inventory costs are going up because most of the cheap steel people bought is going out the door,” a second Midwest service center source said. “There’s a lot of people who think we’ll be at a bottom in November, and people were pushing inventory out the door banking on the fact they’ll buy cheaper in November. But as lead times continue to push out, that window for the end-of-the-year sale gets smaller and smaller. I personally don’t think we’ll have a huge fire sale if lead times continue to push out.”

Skeptics, though, counter that while demand has remained steady, levels are still far too low. Without a pickup in real demand, higher prices cannot be justified, they said.

“I’m betting that prices will go down again. There’s no reason for it to hang up there,” a third Midwest service center source said.

Others agreed, noting that with supply constraints resolved, particularly with the return of Pittsburgh-based U.S. Steel Corp.’s Lake Erie Works in Nanticoke, Ontario, after an 18-week lockout, downward pressure is increasing.

“We’re anticipating that pricing will go back down again. With U.S. Steel settling, it’s causing psychological pressure. There are some planned outages, but there will also be tons added back into the marketplace that weren’t there in the last five months,” another Midwest service center source said. “From my own standpoint, things look to weaken again.”

SteelBenchmarker’s mid-October report showed an uptick in U.S. flat-rolled pricing. U.S. hot-rolled band rose 0.8 percent to $723 per tonne ($656 per ton) from $717 per tonne ($651 per ton) three weeks earlier, the first increase since late July, and cold-rolled coil increased 1.3 percent to $837 per tonne ($759 per ton) from $826 per tonne ($749 per ton) in the same comparison.

Sources along the coastline said imports set to arrive in the fall will certainly put pressure on domestic tags, although several traders said Asian prices have since increased from lower levels.

Looking ahead, low inventory levels and longer lead times may mean service centers won’t have as much leverage as they did before the summer to push for deals.

“I don’t think we’ll see much of a change one way or another,” a Southwest service center source said. “Service centers are relatively tight on their inventories, and lead times have pushed out. They can’t afford not to place some orders now, and that’s probably a good case for prices to hold steady. I do think they’ll soften closer to the end of the year, but they’ll remain rather steady.”

Flat-rolled steel buyers welcomed a round of price increases because they said it provided a better base for negotiating 2014 fixed-price supply contracts.

On the spot market, however, lead times are short, the majority of service centers are keeping inventories in a tight range of between 30 and 60 days’ supply, and several buyers said their customers have slowed production.

“We are buying just what we need; nothing has changed in that regard,” a source at a Mississippi Valley processor and distributor said. “I have a 45-day inventory. Lead times are short so there’s no reason to keep more.”

A few producers have begun “to mention what they want to do with firm, index-based pricing and we’ve received requests from customers to quote them with an index-discounted fixed price for three, six and 12 months,” he told AMM. “At least one large manufacturer has mill quotes that actually do include index-based less a percentage. (Producers) said they won’t do it, but they are doing it for end-users.”

Supply deals won by large original equipment manufacturers likely won’t be extended to service centers any longer, he believes, because producers lost money discounting steel on orders of virtually any volume.

“The fourth quarter is quoting time for new and existing automotive business in 2014,” an upper Great Lakes distributor source said. As for the latest announcements of $30- to $40-per-ton increases, “we’re not sure how much will be absorbed in the spot market, but it creates a stronger environment for us to quote.”

A Midwest buyer of heavy-gauge steel said equipment builders have slowed down and “pulled back their forecasts. We have a very large inventory so I don’t think we’ll be purchasing much in the fourth quarter. There is an overabundance of plate, which will keep prices low and competitive.”

A second Great Lakes buyer noticed a firming of spot tags. “It seems prices defied all the rules lately. There was a wide disparity between mills; a gap had opened in the market,” but that meant customers moved their orders around, he said. Immediately before the announced hikes, “the low end was $620 and the high end was $660 (per ton).”

An Institute for Supply Management Steel Buyers Forum survey showed the proportion of steel buyers who reported having more than two months of inventories jumped to 26.7 percent in September from 17.6 percent in August, its highest level since December. Sixty percent of buyers said they would maintain current inventory levels over the next six months while the rest planned to reduce stocks.

The steel sheet price hikes announced in October came on the heels of mounting market speculation that a price increase was near.

“I think it can stick as long as other people understand the market well enough and choose to support it,” one Midwest service center source said. “You’ll need one of the big three to come out and say, ‘Yeah, our lead times are out and we want to support it.’ It’ll absolutely hold water.”

However, the move is interesting because “there are mills out there looking for business,” one East Coast service center source said. “Let’s see if this is a move to hold the current pricing or move it higher.” He added that passing the price increase along to end customers would be difficult.

However, demand in the steel plate market remained flat as of early October, with sources anticipating continued steadiness into the fourth quarter.

“Things have been very flat, pretty much like all of 2013. There’s no reason for me to believe that we’re going to see a change until maybe the first of the year,” another Midwest service center source said. “I don’t see anything happening in the fourth quarter that will change that.”

Despite a steady outlook, however, mills and service centers said that a softening in steel prices in certain parts of the country in mid-October was due to competitive imports and pressure by service centers because of stiff competition downstream.

“We’re just in a malaise. The only thing that’ll change it for us is if we see some confidence go back into maintaining better inventory,” one mill source said. “I think most of our customers, including manufacturers, continue to be very cautious on inventory.”

Market sources had previously speculated that the string of sheet price hikes through the summer would lift plate prices. However, while the plate market had a slight uptick for several weeks, much of that strength has dissipated, market participants said.

Some reasoned that the sheet increases were due to supply constraints rather than demand, which is why it has not translated to the plate market.

“We’re not expecting any big changes one way or another,” a Mid-Atlantic service center source said. “Things are very flat.”

On the import front, foreign plate has gained little traction. Imports through the summer were close to half of what arrived last year, particularly as U.S. prices were relatively low compared to world prices. While volumes were lower than expected, some said, it may be enough to keep domestic prices at bay.

“Import doesn’t have a big enough price advantage for people to place a lot of tons, but there are enough offerings out there that are continuing to suppress pricing so you can’t raise domestic prices because demand isn’t strong enough,” the mill source said.

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