Virtually every steel mill in the United States and Canada has either made a public announcement of their new pricing to the industry (Severstal, NLMK USA, AK Steel, Nucor & ArcelorMittal Dofasco) while those who have not publicly announced have been advising their customers of their new price levels which average between USD 30 and USD 50 per ton.
In Steel Market Update opinion new higher prices are starting to be collected and will continue to do so for the next 30 days. Therefore, we have adjusted our SMU Price Momentum Indicator to Higher from Neutral to reflect the flat rolled steel market move to higher pricing. Our previous move to Neutral was made on November 1st 2011 just prior to the Severstal price increase announcement.
We have made our move to Higher for a number of reasons. First, we are not hearing a lot of push back from steel buyers regarding the price increases announced. There may be an issue as to exactly where prices settle, after all Nucor came out at USD 30 on hot rolled versus USD 50 at many of the other mills, so there will be a process of finding where transactions will be placed. Second, lead times have move out. We have seen at least one mill RG Steel put their fully annealed cold rolled and No 4 coating line at Sparrows Point on an inquiry only basis, a sign of strength in their order book and a belief prices will continue to move higher. Third, we are moving into first quarter which is a period of time when inventory adjustments made in December for tax purposes as well as seasonal factors produce a stronger order book for the mills. Fourth, psychologically buyers are prepared to pay higher prices, we discovered more than 60% of those actively involved in the flat rolled steel industry expected to pay more in January during our early November SMU steel market survey.
In 2010, price increases were announced at exactly the same time, the first week of November and our indexes began moving higher by the second week of November. From early November 2010 through the week of March 22nd 2011 flat rolled steel prices moved USD 342 per ton before retreating.
The industry, including a number of steel mill executives with whom we have spoken over the past week, does not feel as though prices will make the same move as last year. With Europe, South America and Asia slowing, prices for iron ore, scrap and other commodities falling and supply demand questions remaining in the United States, the expectation is for this run up in prices to be fairly muted.
The belief prices will not shoot up the same way they did last year has caused many companies to not build inventories and to remain conservative with their purchases. This could create an interesting situation should there be any spike in demand or supply interruption and lead times jump two to three weeks without warning.
At the same time there is an equal chance we have a mild winter, no supply interruptions and the Europe contagion coupled with a slowdown in China could cause a recession here in the US and lead times retreat causing mills to react to their weaker order books with discounted pricing. Chances of either scenario occurring are probably 33% for extended lead times, 33% for lead times coming back and the balance being the market remains as is.
(Sourced from www.steelmarketupdate.com)
