As the fourth quarter
gets underway, U.S. and Canadian service centers continue to
buy steel products on an as-needed basis due to squeezed
margins and changes on the supply side.
Competition at the
service center level also has been increasingly tough, causing
some to reconsider loading up on extra steel. U.S. service
center operators cite slow economic growth for the uncertainty
permeating the domestic steel market. Some recent price
increases on hot-rolled, cold-rolled and coated coil are not
going to hold, sources told AMM, and there is concern
that domestic prices will drop.
pointed to oversupply, short mill lead times and erosion in
scrap pricing as factors placing downward pressure on
flat-rolled prices for the fourth quarter.
The latest survey by
the Institute for Supply Managements Steel Buyers Forum
showed forward order trends up, backlogs up slightly, improved
shipments vs. the previous quarter and a 13-point jump in the
percentage of respondents expecting an upturn in sales and
production in their industries over the next six months.
Yet some sources told
AMM that lower scrap pricing, returning capacity at AK
Steel Corp., West Chester, Ohio, and Pittsburgh-based U.S.
Steel Corp.s Lake Erie Works in Nanticoke, Ontario, and
imports will pressure domestic hot-rolled and cold-rolled coil
prices into lower realms this fall.
think anyone has a lot of inventory, an East Coast
flat-rolled distributor source said. Were OK busy,
not great busy. Were collecting our increases, but
definitely not all of it. Competition is hard.
Others arent so
sure. I think people came back from the (Labor Day)
holiday to see that their inventories were low. There are lots
of whispers of another price increase to shore up demand,
a Mid-Atlantic distributor source said. Its too
late to bring in imports. If your boats havent left the
docks of Asia, they wont be here until Thanksgiving. So
you have a window of opportunityÑif you did purchase
importsÑto beat the domestic increase. But if the
domestic price falls apart, thats not good.
A third argument for
stable domestic flat-rolled pricing is that mills are standing
tough, sources said.
We are not
seeing any side deals being made. People are buying for
todays business and not going further out. They
dont have the cash to (buy large volumes and) keep
inventory high. Banks are not lending much money, an
eastern Great Lakes service center operator said, noting that
both the consuming markets and steel pricing were stable.
Some sources said
inventory levels are unlikely to change due to stable but
lackluster demand. Demand has been status quo, a
Detroit-area sheet buyer said. Nobody is overwhelmingly
optimistic or pessimistic. Some products are selling better
than others. Defense work tailed off quite a bit, but the solar
business is coming on strong. Automotive is the same.
Steel shipments during
the first half of September were fairly even with the pace of
the previous 60 to 90 days, but pricing had become less
certain, according to U.S. service center operators.
(in August) were on par with the last three months and are
about the same through mid-September, a source at an
upper Great Lakes flat-rolled distributor told AMM.
If theres a good deal on steel Im going to
buy it, (but) prices are flat.
A cold-rolled and
coated sheet distributor source predicted that the fourth
quarter wont be very strong. I think prices will
drop off. They are already showing signs of weakness in spite
of tightness in cold-rolled, he said, citing Fort Wayne,
Ind.-based Steel Dynamics Inc.s inability to roll that
material until November due to a technological setback at the
companys Butler, Ind., facility.
Customers are not able
to forecast very far ahead. Theyre going
hand-to-mouth and everyone is still keeping inventories pretty
low and buying as they need, he said.
U.S. and Canadian
service centers shipped more than 4.11 million tons of steel
products in August, up 4.8 percent from 3.92 million tons the
previous month but down 1.2 percent from 4.17 million tons a
year earlier, according to the latest Metals Service Center
Institute data. U.S. inventories totaled 7.94 million tons (2.2
months supply at current shipping rates) at the end of
August, up 1.3 percent from 7.84 million tons (2.3 months
supply) a month earlier but down 11.3 percent from 8.95 million
tons (2.5 months supply) in August last year, while
Canadian inventories of 1.39 million tons (2.9 months
supply) were down 5 percent from 1.46 million tons (3.2
months supply) in July and 14.4 percent below 1.62
million tons (3.2 months supply) a year earlier.
shipments by U.S. and Canadian service centers totaled 32.06
million tons, down 3.8 percent from 33.32 million tons in the
first eight months of last year.
With the economic
recovery continuing to move forward sporadically, service
centers outlook on profitability has a great deal to do
with improving efficiency. As the year passed its halfway
point, it became clear that steel buyers were divided over
where the overall economy was heading, the direction of steel
production and the strategies needed to meet the demands of a
so much uncertainty, a source at a Missouri River Valley
sheet distributor said. Mills are pushing (the increases)
but the market is not quite as strong as they would like.
Due to competition, service centers arent passing price
hikes along to their customers at the same speed as
theyre implemented by producers, he added.
We have paid up
on the flat-rolled increases, but not all of them, a
southeastern full-line distributor owner told AMM.
Nor do we believe they will all stick and, if so, not for
long. BusinessÑat least in our areaÑis not good
enough to sustain it.
A Great Lakes coated
coil buyer agreed with the others assessments. The
price increases have somewhat stuck. It has helped people to
get off the fence and buy a little, he said. But
Im not optimistic about (improved volumes) continuing on
more than a month-to-month basis. They are not buying
Spot quotes and lead
times on coated sheet vary widely, he said. There is a
lot of uncertainty, but its good that steel users are not
sitting on the sidelines anymore.
Summer is never
a boom time, the Missouri River Valley distributor source
said. Among steel distributors and their customers,
everyone is running lean. The new normal is definitely
A Mississippi Valley
sheet distributor source said that even though his orders are
steady, our strategy now is to wait and see (if the
latest) increase sticks. That is a departure; normally we
bought a months worth of steel at once to fulfill a
customers quarterly needs. Now were buying one week
at a time.
A Great Lakes
distributor source is upbeat about prices sticking and
holding. Yet there is no question the market is still supply
driven, which leads me to question the longevity of higher
pricing, which might see some erosion by October, he
Orders have risen in
the past few months, and prices seem to be sticking, one
Midwest warehouse sales executive said.
However, a second Midwest source said deliveries have
arrived ahead of officially quoted lead times. Supply is
plentiful, so how the mills are justifying another
increase, I dont know. Warehouses should be very wary of