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Sheet depressed amid oversupply, flat orders

Keywords: Tags  steel, steel prices, flat-rolled steel, steel coil, U.S. Steel, ArcelorMittal, Lake Erie Works, Indiana Harbor Works SteelBenchmarker

NEW YORK — The steel sheet spot market has dragged its feet this week as thin margins and short lead times continue to hinder pricing upside.

Mill and buyer sources have pointed in recent weeks to overcapacity as a top concern for the sheet market, particularly as a glut of material has discouraged would-be buyers from purchasing more than what they immediately need.

And with U.S. raw steel output at an average capability utilization rate of 78.5 percent last week, down 0.2 percent week on week but up significantly from 72.6 percent at the start of the year, sources say they see little change to the supply situation ahead.

"There’s overcapacity. But it’s not only in the U.S.; there’s global overcapacity issues, too," one Midwest service center source said.

Sources pointed out that recent supply disruptions have done little to change market fundamentals. Last month, Pittsburgh-based U.S. Steel Corp.’s Lake Erie Works in Nanticoke, Ontario, locked out some 1,000 unionized workers after the two parties failed to reach a labor agreement (, April 29). Chicago-based ArcelorMittal USA LLC also recently had a "technical" issue with the No. 7 blast furnace at its Indiana Harbor facility in East Chicago, Ind., which a spokeswoman confirmed has since returned to normal operations.

But those issues haven’t had a noticeable impact on steel availability, sources said.

"Everyone is quoting such short lead times. When one of them disappears or has a labor outage or stoppage, it doesn’t even change the psychology of the market," one northern steel buyer said. "Pricing in steel continues to slide. There are still too many people chasing too few orders."

SteelBenchmarker’s latest report, released May 15, confirmed the lower pricing trend, with hot-rolled band prices falling to $647 per tonne ($587 per ton) during the past two weeks, down 2 percent from $660 per tonne ($598 per ton) previously. SteelBenchmarker’s price for cold-rolled coil was also down 1.9 percent to $757 per tonne ($687 per ton).

But while prices continue to slide, market players point out that in terms of volume, conditions look better year on year.

The latest data from the Metals Service Center Institute (MSCI) confirms the trend, with U.S. distributors shipping in April at a rate of 165,000 tons per day, up from the 163,200-ton-a-day rate logged in March although down slightly from 169,200 tons a day shipped in April 2012. For carbon flat products, the daily shipment rate in the United States was 106,800 tons, up just slightly from 106,200 tons a day shipped in March but down from 108,500 tons a day shipped in the same month last year.

In Canada, total April steel shipments were at a rate of 23,900 tons a day, up slightly from 23,600 tons a day shipped in March but down from the 24,800 tons a day shipped in April 2012, while Canadian flat-rolled carbon shipments were at a rate of 12,400 tons a day last month vs. 12,200 tons a day in March and 12,700 tons a day in the same month last year.

Meanwhile, U.S. distributors held 5 million tons or 2.3 months’ worth of flat-rolled carbon inventory in April, down from 5.2 million tons or 2.4 months’ stock in March, MSCI data show. Canadian distributors’ stocks fell even further, dropping to 3.8 months’ worth supply in April from 4.5 months’ worth the previous month.

According to sources, with overcapacity at both the mill level and the service center level, margin pressure doesn’t look likely to change in the near term.

"Compared to last year, demand has been a little better. But there’s just so much steel out there and margins are being squeezed so thin throughout the supply chain," a second Midwest service center source said.

Purchasing managers also noted a hesitancy to buy steel because prices have continued to slide. In some cases, the value of product in hand loses its value within days of arrival, they said.

"Pricing is in the ol’ garbage," one Northeast service center source said. "Unfortunately, I don’t see prices getting better. No one is telling me anything good; they’re all still hand to mouth."

As for significant upside, the future looks grim, sources said.

"I think people are saying that we’re at the bottom because the mills can’t go any longer. But just because it’s a bottom doesn’t mean we’re going any higher," the second Midwest service center source said. "There’s too much inventory out there. With lead times so short, there’s no need for people to buy heavily."

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