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Soft SBQ demand may persist into fall: buyers

Keywords: Tags  Special bar quality, SBQ, scrap surcharges, mill lead times, distributors, cold finishers, OEMs, corinna petry

CHICAGO — Demand for specialty bar products, which was remarkably strong in 2011 and pushed mill lead times and prices up dramatically, has ticked slowly downward this year, with most cold finishers and end-users saying July marked the bottom.

"July was poor," said a source at a distributor in the upper Great Lakes region. "Volume was down and price was down significantly, related to the reduction in scrap surcharges. August has not really changed much, but for the most part the discounting has stopped."

Spot market pricing for special bar quality (SBQ) products has followed the trajectory set by AMM’s index for shredded automotive scrap and No. 1 busheling, used as the basis for certain mills’ surcharges. The SBQ products tracked by AMM have declined by $45 this month, based on the amount that mills’ raw material surcharges had fallen.

July discounting was sometimes greater than the surcharge declines, and sources said there were more tons offered at discounted prices because mills offloaded quantities to brokers to sell.

"(Brokers) bombarded end-users with (steel at) $100 per ton less than from a distributor," the Great Lakes distributor source said.

"Most people have talked about it: 2012 just didn’t happen," a national bar sales executive said. "There were great expectations. Now there is a lot of apprehension. A lot of markets are slow, as are a lot of customers. Mining, automotive, heavy equipment is said to be good—but really, where the hell is it? There is quoting activity, but orders are still slower than earlier in the year, and the volume of opportunity is lower."

Sources said mill lead times are six to eight weeks, a far cry from the 13 months quoted during the first half of 2011.

AMM last week raised its consumer buying price for shredded automotive scrap in the Chicago market by $83 per ton following successive drops in the benchmark over the previous two months that totaled $103 per ton (, Aug. 6).

Buyers now expect raw material surcharges to bounce up by $83 per ton effective Sept. 1. Charlotte, N.C.-based steelmaker Nucor Corp. confirmed as such in a letter to customers Friday announcing it would increase its surcharge for SBQ, rod and semifinished products.

"It may get people off the fence: 'Bring it in during August, because it’s going up in September,'" the national sales executive said.

"Our bar business has flatlined (and in some products) is down 5 percent vs. last year," an Ohio Valley service center operator said. He was one of numerous sources who cited uncertainty about the outcome of the upcoming elections as well as possible congressional tax and spending cuts that will come to a head at year-end.

Several sources, however, said they saw a pickup in inquiries during the first third of August. "Service centers will stock up for a good autumn," said a source at a northern processor. "What was down momentum is now upward momentum. Whatever pricing and surcharge announcements come out in August will be firm for September."

An executive at a job shop for major original equipment manufacturers (OEMs) in the energy market said his business is "extremely good. We cannot keep up." He said he is running three shifts and has seen a 7-percent increase in order rates this year vs. 2011.

"Some customers are deferring things. This week, we have received requests to push things out to later in the year," a source at a Mid-Atlantic cold drawer said, adding he’s even seeing "some softening" in energy companies’ order books.

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