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Steel sheet hits bottom in oversupplied market

Keywords: Tags  sheet, steel, scrap prices, Severstal, service center, margins, overcapacity, Catherine Ngai

PITTSBURGH — Domestic steel sheet prices appear to have hit a bottom, sources said, but an oversupply of material continues to stymie any upside despite what distributors and mills report to be stable demand.

"People are all busy. Everyone’s business is good, but it’s just that everyone is struggling with margins," one Midwest service center source said. "The mills are drawing the line in the sand that we’re at the bottom. No one is coming out and predicting a price increase, but no one is budging for lower numbers."

Sources said hot-rolled band prices remained steady this past week, with most buyers and sellers pegging spot prices at $29 per hundredweight ($580 per ton) f.o.b. Midwest mill, although a number of sources reported larger-tonnage transactions at closer to $28.50 per cwt ($570 per ton).

The issue, many said, isn’t necessarily that business conditions are terrible or that demand itself isn’t steady. Instead, squeezed margins are a top concern for many service centers and mills, sources said.

"The margins are what sucks. When we all add extra capacity, we all knock each other’s margins down," said a second Midwest service center source.

Others agreed, citing too many suppliers chasing too few orders. "Too many people are too desperate. And too many guys aren’t making enough money," said a third Midwest service center source. "There are plenty of people out there who are putting out tons of steel and taking a loss."

Oversupply in the steel sheet market has been cited as the market’s Achilles’ heel for some time, contributing to a multimonth pricing slide. Last month, Severstal North America Inc. announced that it intended to push sheet prices higher and end the slide, but buyers said the hike did not stick due to the capacity concerns.

"If you cry wolf too many times, it has a negative impact on the people you sell to. It looks to me the mills cried wolf one too many times," the second Midwest service center source said of the attempted hike.

There are, however, a number of positive signs on the horizon, sources said. A combination of planned outages at various mills, the lockout at U.S. Steel Corp.’s Lake Erie Works and an expected deal this month for ThyssenKrupp AG’s Calvert, Ala., facility could help solidify steel prices, sources said. With residential construction activity picking up, the horizon could look even brighter, sources added.

"If we see a pickup in commercial construction, I think that will be enough to kickstart this business," said a service center source in the West. "I’m really anticipating a pickup in the first quarter of 2014. Right now, places like Arizona, Colorado, those areas are where residential has been kicking in high gear for the last six to eight months. Now, commercial is starting to follow it."

Yet downward pressure remains, particularly with scrap prices in major markets, such as Detroit and Chicago, down about $20 per ton in May (, May 3).

"The supply-demand situation still seems to be in overcapacity. Prices are fairly stable right now; I don’t anticipate pricing moving at all," said a fourth Midwest service center source. "There’s no more room to give on the mill side of things. But with scrap falling, it’s only going to weaken their ability to get a stronger, high number. With that said, it certainly shouldn’t push the price down."

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