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Distributors puzzled by merchant product cuts

Keywords: Tags  Nucor, Gerdau Long Steel North America, Steel Dynamics, SDI, merchant products, price decrease, scrap, steel imports Samuel Frizell

NEW YORK — Mill buyers and distributors of merchant products were left with unanswered questions and devalued inventories following the unexpected $50-per-ton price drop by major domestic mills last week, with many of them blaming competition with imports for the reduction.

"Our inventory got slashed overnight. I’m not quite sure what brought it on. I’m just as puzzled about it as anyone. Exactly what was behind it, I don’t know," one distributor said.

Nucor Corp. lowered its prices on merchant products by $50 per ton effective with Feb. 15 shipments (, Feb. 15) and Gerdau Long Steel North America and Fort Wayne, Ind.-based Steel Dynamics Inc. (SDI) followed suit the next day (, Feb. 20).

Sources at service centers, as well those at mills who had to lower prices to match Nucor, struggled to explain the dramatic drop at a time when construction is expected to heat up for the spring. Some said the price decrease could have been a defensive move to remain competitive with imports.

"It’s unusual in light of a projected uptick in scrap in March and it’s unusual ahead of construction," one market player said. "We’ve heard ... that Nucor was concerned about some Mexican imports and maybe some from Turkey as well, but they also in their price letter indicated domestic discounting."

However, other sources hadn’t noticed significant enough changes in import prices to warrant a drop in domestic tags.

Charlotte, N.C.-based Nucor also lowered its raw materials surcharge by $9 per tonne effective Feb. 15. The drop—based on AMM’s consumer buying price for shredded automotive scrap in Chicago, which settled down $9 per ton earlier this month (, Feb. 7)—was the first since December.

The scrap decrease was also considered unusual because prices historically tighten in the winter months, and lifted steel long product tags with them.

"They said (the decrease) was because of scrap," a second distributor said. "Normally, in January and February you see a rise in pricing. This year you did not."

Scrap looked set to drive upward next month, with steel mill buyers and scrap suppliers expecting a $10 to $20 price recovery in March to match January numbers after February scrap prices eased $8 to $20 per ton, depending on city and material grade.

The price decrease has put margins under pressure at some mills and distributors.

"It devalues our inventory, so everything we bought is now $2.50 less (per hundredweight)," the second distributor said.

"It was very unfortunate. It lowered the bar for everybody. It’s going to be difficult to operate at a break-even price," the first market participant said.

But distributors are powerless, they said, adding: "We’re like the bottle in the ocean: the wave crashes, we go with it."

Sources at Nucor declined to comment on the price change, but reiterated the wording in the pricing letter, which said the changes were made "to respond to competitive conditions (i.e. imports, domestic discounting)."

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