CHICAGO Domestic special bar quality (SBQ) prices appear to be on the downswing as the $50-per-ton base price increases announced in mid-June have failed to gain traction at the same time that scrap surcharges registered a decline of $65 per ton.
The price increase, originally expected to go into effect with July 1 shipments, "did not pan out," an upper Great Lakes cold finisher said. "The reality is that we are paying as little as possible, depending on how much material we place. The mills are willing to work with you if you have a decent-size order."
A Great Lakes bar distributor confirmed that "prices are dropping," noting that because one mill "didnt go along, all of them rescinded."
A salesman for an Ohio Valley bar distributor agreed that the SBQ market had lost ground. "The price increase didnt go through. Business is terrible. I think the party is over," he said.
At least five domestic producers of engineered bar products had announced a $50-per-ton base price increase in mid-June (AMM, June 21), a move that some distributors and consumers told AMM at the time was "a mistake." The scrap surcharge on SBQ was simultaneously slated to move down by $65 per ton in July after AMM lowered its No. 1 busheling price for Chicagoused by some mills as the basis for their raw materials surchargesby the same amount (AMM, June 7).
On Tuesday, AMM lowered its No. 1 busheling price for Chicago by a further $43 per ton (AMM, July 11) in a move that some SBQ buyers said could put even more pressure on prices in the weeks ahead.
"July (scrap tags) are going to go down another ($43 per ton), so weve not hit bottom," a Southern bar distributor predicted. "Its going to be a long, hot summer."
A second cold drawer echoed the comment, saying "the surcharge component has fallen and will supposedly fall again next month."
The upper Great Lakes cold finisher agreed with forecasts that scrap and steel pricing will continue to move downward during "the lull of 2012," but said he believes "we are at or near the bottom, and within 60 days (both ferrous scrap and steel prices) could go up 5 percent."
The pullback in pricing comes on the heels of a fairly robust start of the year for the specialty steel sector.
"We were so busy for so long. And now we have all this new capacity coming on, which could not come at a worse time. Customers are busy, but they are getting killer pricing," the salesman for the Ohio Valley bar distributor said. "The spot market is depressed, and people are giving their margins away. Scrap is plummeting. Im waiting for base price decreases, to be honest with you. There is all kinds of pushback."
The cold finisher agreed, noting that pricing is particularly difficult downstream "because people are selling at little to no margin; they have to be based on previous inventory cost."
Meanwhile, buyers report mixed signals on the demand front. Automotive and agricultural equipment remain healthy, but some parts of the energy market are being negatively impacted by lower oil and gas prices, as well as excess foreign supply, sources said. "Energy applications are taking a beating because of imports," one Midwest source said.
However, one Mid-Atlantic drawer said he wont tighten his belt because, although "everybody is seeing a little softness in demand," business is steady. At the same time, "we do see smaller (volume) orders and the dollars per order seem to be smaller," he said.
Meanwhile, the Great Lakes distributor said he finds that "customers are not as busy as they were. ... Nobody is excited right now. Im talking to a customer today who is off 80 percent with us; he went to 30 hours. When you hear that from good customers, its worrisome."