NEW YORK Stainless steel service centers and distributors are optimistic that base price increases announced by producers last week will gain traction in the market, but are wary of discounting that they say is going on behind closed doors.
Service center sources said stainless producers success in getting base price increases to "stick" is largely dependent on whether any of the producers break ranks and make special deals for their customers.
"It occurs to me that it will stick if they all stick together," one source said.
"What remains to be seen is the behind-closed-doors discipline; as in, will they go back to some deeper discounting for their larger-volume guys, in which case (prices) might just erode back to previous levels," a second source said.
Outokumpu Stainless Coil Americas was the latest to join a two-part base price increase effective with Aug. 1 shipments, which will be applied again for shipments effective Oct. 1 (amm.com, Aug. 7). North American Stainless Inc. (NAS) kicked off the move last week, followed by AK Steel Corp. and ATI Allegheny Ludlum Corp. (amm.com, July 30 and July 31).
The two-part approach is likely to ensure that at least one of the two increases takes hold in the market, sources said.
"When they do that, theyre usually successful because the threat of the second increase solidifies the first one. We did see the increases start at NAS, which is a good thing, hopefully that will legitimize it a little bit," a third source said.
"Its like your dad saying youll get a spanking if youre home late, but youll really get a spanking if you miss dinner too," the second source added.
A fourth source noted that the timing of the increase is likely to ensure they are incorporated in 2014 contract discussions.
"You can go with it until you start losing orders, but my gut feeling is one of these two (increases) are going to settle. We start negotiating 2014 contracts soon, so I think they wanted to make sure this is out there and its in the discussion," he said. "Were trying it, were putting numbers out there at the higher price. I havent heard back yet on any of them, but were not going to lose any orders against it."
Sources also agreed that the increase was inevitable since raw material surcharges for commodity-grade stainless steel have dropped for five consecutive months (amm.com, July 22).
"Every one of them makes some profit on the surcharges, so if the surcharge keeps dropping, theyll really take it in the teeth," the second source said.