Flat-Roll Market's Tightening Up
By John Packard
on May 10, 2016
Service centers express concern about the limited availability of steel as mills tightly control orders.
The supply of flat-rolled steel in the U.S. is beginning to tighten, which may help firm up prices, but could leave service centers scrambling to find enough material. Sources contacted by Steel Market Update report that mill lead times are extending, spot prices are rising, and some mill order books remain closed to spot business.
Several market changes are factoring into this tight supply situation:
- Scrap prices appear to be rising. Ferrous scrap jumped by $40 to $55 per gross ton in early April transactions. However, the mills do not know what they will have to pay for scrap feedstocks in May and June. If they open their orders books for June and beyond, they run the risk of operating under the assumption of a future cost that may prove incorrect.
- Demand from contract customers, notably automotive, continues to be quite strong. Mills report that most contract customers are ordering and taking the maximum tonnage allowed. This is important to monitor. A change in sentiment and a drop-off in orders on contract tons could signal a crack in steel’s pricing foundation.
- Supply is constrained. AK Steel Ashland, U.S. Steel Fairfield and U.S. Steel Granite City all have their steelmaking operations either temporarily (Ashland, Granite City) or permanently (Fairfield) idled. Supply is further constrained by mills that have opted not to take spot business at this time. Nucor, for example, had not yet announced new spot pricing as of mid-April.
- Foreign flat-roll is available, but generally not at attractive enough price levels, especially taking into account the long lead times to receive the material here in the U.S. Foreign tons are likely to continue entering the U.S. market, but at reduced levels.
- The cap on spot orders, coupled with the lengthening lead times, has created a sense of urgency, even anxiety, among service centers and other steel buyers. Talk of controlled order entry and allocation have added fuel to a potentially volatile situation.
Last month, SMU heard from service centers around the country that order flow is being controlled by steel-makers from coast to coast. A Phoenix service center reported very small allocations from its West Coast mill sources. A much larger distributor on the West Coast said it is selling out of its availability. A mid-size service center in the Midwest said “we are on allocation,” and its customers are “in sticker shock.” A large service center noted that one of its mill suppliers actually had more tons to offer recently due to productivity gains, but those tons were quickly and quietly sold into the market. Another listed the mills that still won’t take orders for July, adding: “Right now, we are ‘no quoting’ every inquiry coming in, and there are a lot. Panic has officially arrived.”
While it's never time to panic, it is time to plan. Expect prices to go higher and steel to be tight over the next month or two. We recommend that buyers stay alert to lead times and stay close to their suppliers.
[Steel industry veteran John Packard is publisher of the Steel Market Update e-newsletter, a provider of steel industry news, pricing, market trends and educational services. SMU will host its annual Steel Summit Aug. 29-31 at Atlanta's Georgia International Convention Center. For more information, visit www.SteelMarketUpdate.com