Steel market participants are expecting stability for much
of 2014, particularly as demand looks set to grow at healthy
levels and steelmakers expect to carry forward pricing momentum
that began in the second half of 2013.
With U.S. steel producers pledging to move away from
index-based discounting, a cautious but steady pickup in
demand, razor-thin inventory levels and a change in the supply
landscape due to a major acquisition, steel mill and
distributor sources expect 2014 to be a positive year.
Most of the signs I see look like 2014 will be better,
and possibly significantly better, one Mid-Atlantic
service center source said. We think commercial
construction, which is a large chunk of our business, will come
back significantly. Weve had to make do without it or at
very low levels for the past few years.
Much of 2013 focused on U.S. steel mills moving away from
contract discounting, also known as CRU-minus
deals, a practice that mills claimed eroded sales margins.
Mills are said to be sticking to their guns, with the majority
refusing to offer index-based discounts, which means much of
the 2014 flat-rolled landscape is expected to change.
On one hand, mills likely will get better margins,
particularly as deals offering 5-, 6- or even 7-percent below
index prices were causing many to sell at breakeven or below
cost. With mills making more money, distributors expect better
margins along the entire supply chain.
But one possible consequence of the end of index discounting
could be an increase in imports as buyers wary of an uncertain
steel market, coupled with cut-throat competition downstream,
look to hedge with increased buying offshore.
In the summer, it was hard for anyone to sell
(foreign) steel, one steel trader said. But with
the CRU-minus contracts going away, people got caught. Now
theyre buying foreign with gusto. From what I understand,
the mills are playing it tough and going strong on this game.
Were all happy to see the prices go up.
Another possible result, sources indicated, would be that
buyers could prefer to procure more of their stock inventory
tonnage on the spot market rather than lock in a contract
because the benefit has diminished greatly. If so, that could
hurt mills that are less competitive and make the spot market
much more volatile.
However, others expect transactions generally will be higher
across the board with discounting off the table.
Itll all pan out depending on how much imports
actually come in, a Midwest service center source said.
Everyone says there will be a flood of imports, but
whether that exists or not also depends on if its on
time. For 2014, I dont expect major movements up or down
in pricing. But, on the whole, the bottom range will definitely
The flat-rolled market also will be affected by changes in
the top management at several domestic mills, including
Dearborn, Mich.-based Severstal North America Inc. and
Pittsburgh-based U.S. Steel Corp.
A second Midwest service center source indicated that the
changes could mean a different way of doing
Those changes already seem to be under way, including U.S.
Steels recent announcements to shutter the iron and
steelmaking operations at its Hamilton Works in Ontario as well
as two of its coke batteries in Gary, Ind., and a plan to
dissolve its Double Eagle Steel Coating Co. joint venture.
More changes are expected in 2014 that likely will include
mills shedding old assets in favor of new ones.
The new year also will bring Essen, Germany-based
ThyssenKrupp AGs shift away from the U.S. market with the
pending sale of its Calvert, Ala., facility to a consortium of
Luxembourg-based ArcelorMittal SA and Tokyo-based Nippon Steel
& Sumitomo Metal Corp. The $1.55-billion deal, announced in
late November, will mean a likely tightening in supply because
of market consolidation, which should trickle through the rest
of the market.
ThyssenKrupps Calvert deal could mean that U.S.
hot-rolled prices will peak above $700 per ton in the first
quarter, according to a note issued Dec. 1 by analysts at
Cleveland-based KeyBanc Capital Markets Inc.
With inventory levels remaining razor thin and buyers
continuing to sit on the sidelines wondering if pricing will
fall in the near term, some sources said it can only mean
higher flat-rolled pricing. But skeptics still wonder whether
the upward momentum will last, particularly with so many
participants still reflecting on the 2008 financial market
crash. They said the best method is to be cautious.
The steel market is like the stock market. When we
were back in 2005, 2006 and 2007, everything was almost too
good to be true, a second Midwest service center source
said. Something is going to happen
eventuallyanything that goes up has to come back down.
Its just a matter of time. Were all cautious and
service center level guys are even more cautious because last
time, when pricing went up, up, up like this, it didnt
come down graduallyit came crashing down.