NEW YORK Domestic stainless mills appear to be pushing to change decade-old published base prices, a sign of market strength, but the move has some distributors up in arms.
The domestic market is on course for its third industrywide base price increase in four months in July. And while prices have risen steadily over the course of the year, the method that mills are employingincreasing alloy material base prices rather than the typical discount reductionis drawing flak.
"I have mill base price pages dating back to the mid-90s; (there have been) no changes in the past 20 years. This would be a bit of a stretch if all followed, since the market price has been set by discount points the past 30 years," one distributor source said.
"This is not a change of discount," a second distributor source said. "They are actually changing the base price of metal. ... It doesnt seem like a big deal, (but) its a very big deal. It changes the price of metal forever3 (cents), almost 4 cents (per pound)."
One market source was puzzled by the move. "Theyre breaking something thats been around for 20 years. As long as youve got a large functional discount, why not go that route?" he asked.
Domestic mills are pushing to move the published base price to $1.52 per pound for 304 cold-rolled sheet. They discount off thattypically large discounts because surcharges now make up a significant part of the overall stainless prices due to soaring nickel tagswhich also affects the effective base price.
"It is a different procedure and the message is stronger, but the result is the same," a second market source told AMM.
"AK Steel does not comment on pricing," a company spokesman said. The remaining domestic stainless producers couldnt be reached for comment regarding the reason for the push to raise published base prices, but Allegheny Technologies Inc. (ATI) chairman, president and chief executive officer Richard Harshman told AMM earlier this year that base prices continue to be at unsustainable levels in the long term because no producer can make an acceptable return on capital employed (amm.com, May 14).
Calvert, Ala.-based Outokumpu Stainless USA LLC was the latest to set a published base price increase for July (amm.com, June 26), joining earlier moves by Pittsburgh-based ATI (amm.com, June 16) and West Chester, Ohio-based AK Steel Corp. (amm.com, June 24).
However, North American Stainless Inc. (NAS) must follow suit in order for the increases to stick, market sources said.
Some sources have expressed doubts that NAS will be inclined to do so, given fears that continuously instituted price increases might lead to further import penetration.
"NAS had said that ATI was going to try for another increase for July, but NAS has not decided yet," another distributor source said. "It didnt sound like they were going to be in any hurry to put anything out, and the sense I got was that they were not going to follow."
However, "if NAS does follow, this (increase) amounts to a 2-percent reduction in discount but permanently raises the base (price)," the first distributor source said.
The first market source agreed that there was danger lurking in rapid price hikes overloading buyers and attracting imports.
"NAS has got a good order book, but I think theyre also very cognizant about whats going on around the world. The bigger spread between domestic pricing and imports, the more you encourage imports to come in," he said. "(Domestic mills) have had two base price increases last year and this year, and those are pretty significant, and raw material costs are going up, meaning customers are getting hit with some pretty stiff increases (at the moment)."
But the second market source said strong order books at Ghent, Ky.-based NAS meant they were likely to follow the increase.
"NAS offers delivery of commodity grades not before October, November at the moment, indicating that they are booked very well and that they will support the price hike for new orders," he said.
Meanwhile, robust demand from stainless steel end markets continues to drive monthly distributor shipments higher in both the United States and Canada.
U.S. stainless steel shipments reached 167,900 tons in May, up nearly 0.5 percent from 167,100 tons in April but a 7.4-percent increase from 156,400 tons in the same month last year, according to the latest Metals Service Center Institute data.
Canadian shipments have also rebounded from a disappointing 2013, hitting 15,000 tons in May, down 0.7 percent from 15,100 tons in April but 4.9 percent higher than 14,300 tons in May last year.
Distributors have noted increased orders in a robust North American stainless market, with most domestic stainless mills capitalizing on lead times that extend well through the summer (amm.com, June 6).
Thorsten Schier, New York, contributed to this story.