The past year was undeniably a great year for steel mills, and mostly a pretty good one for service centers. The
Section 232 tariffs led to an immediate spike in pricing, and domestic mills benefited from the decline in imports. With some exceptions, service centers tagged along for the ride.
That was then. This year, the dynamics have shifted a little bit. Prices have been coming down for a few months, and already experienced a dip in the first month of the year. Lead times have come down. Additional supply has come online.
“The sentiment is shifting to the buyer. The buyer is going to have a little more muscle in 2019 than he had in 2018.” That was the conclusion of Lisa Reisman, the co-founder and executive editor of MetalMiner, an online resource for metal buyers. Reisman was the guest speaker at last month’s meeting of the Chicago chapter of the Association of Women in the Metal Industries.
Reisman cautioned that not all metal buyers will enjoy an edge with their mills and service centers, as the continued supply constraints in aluminum will keep the ball in the court of the mills. But steel suppliers should be ready for their consumers to have a bit more pull at the negotiating table this year.
Increased leverage is just one buying shift Reisman envisions taking root in 2019, and possibly beyond.
She outlined a handful of trends she sees from OEMs and other metal consumers as they attempt to secure metal and improve their bottom lines.
Find other sources of material. In this case, it’s less a matter of the Section 232 tariffs as the 201 and 301 tariffs that have consumers broadening their search. That includes both alternate, unaffected, foreign sources as well as domestic suppliers.
Innovative buying strategies. MetalMiner was approached by a group of non-automotive aluminum consumers interested in forming a buying group similar to the North American Steel Alliance. The focus on automotive sheet by domestic nonferrous producers has left the consumers of aluminum sheet for applications other than auto production in a difficult sourcing position. “The issue is not gathering the tonnage. It’s wrangling the supply base to meet the demands of the group,” she explained.
Hedging. Though American steel consumers have been hesitant to engage in hedging and other risk-management buying strategies, the dramatic changes in 2019 have gotten some reconsidering their options.
Breaking down costs. Steel buyers are becoming less willing to accept a single metal cost, but want to isolate the material price from the value-add. “Tell me how much it is to paint that. How much is it to package that? Companies are benchmarking and benchmarking aggressively. Part of that is in response to 201 and 301 tariffs. They say, ‘I’m only going to pay the increase on the metal portion, not the value added-piece.”
Related to that is putting more cost elements under contract. “If I buy from a service center, I want to make sure if we break out the constituent elements, that stuff is getting locked into a pricing arrangement, and that stuff is getting held fixed for the duration of the contract. We’re seeing more companies put more of their spend under management.”
MetalMiner does not forecast steel or other metal prices at specific moments, instead serving to advise its clients on when to enter the market. It does so by analyzing the trends in all commodities, in all industrial metals, and then, finally, in the individual metal a consumer is interested in. In mid-January, she described most metal markets as “sideways,” after nearly 18 months of bull market conditions.
“From our perspective, the bull market seems to be out of steam. We’re not bearish yet. We’ll call it bearish when we have a descending trend of lower lows and lower highs,” she said.