In an interesting bit of juxtaposition, US flat product mills rolled out a $40/nt price increase for HRC and CRC just days before US auto sales stats for August revealed a 5 percent decline from July. Additionally, the official scrap numbers for September have yet to be announced (although the expectation is a sizeable increase), leaving many to wonder just what is motivating domestic mills to push for higher prices. An even more important question is: will the increases even stick?
The last announced price increase (also by $40/nt) was only halfway absorbed-order activity at that time had not caught up with production, leaving room for sales people to "wheel and deal" orders from mills. Currently, though, the gap between supply levels and market demand has yet to really narrow. Additionally, lead times are still around three weeks, and until they begin to stretch out into nine weeks-plus, buyers will continue to have an advantage at the negotiating table.
Domestic hot dipped galvanized (HDG) products also saw a $40/nt price increase, which is equally vulnerable to the troubling news from the automotive sector. August sales are usually one of the strongest of the year, with significant deals offered for older models in preparation for the new models. As long as end-use demand for coated flats remains weak, buyers will be in the driver's seat for negotiating-however, mills are expected to press for upward price movement regardless.
As for flats' downstream products, tubing mills got a jump on the HRC price increase by announcing their own $40/nt hike several days before. HSS purchasing managers, who at the time witnessed spot prices for HRC falling, felt a bit shafted by the announcement, and stated that mills' claim of rising costs equated to little more than "crying wolf". They might still have a legitimate gripe, considering that tubing mills might not pay the full HRC increase, as speculated above.
Standard pipe producers, on the other hand, are not being as aggressive with their customers. Pipe buyers who are aware of the current instability with HRC prices have been hesitant with their purchase activity lately, so even though pipe mills have followed HRC's price increase lead, they might be more willing to negotiate.
Unlike flat product mills, long product mills have not jumped the gun and announced price increases ahead of the scrap announcement. While shredded scrap is expected to increase by $30-$50/long ton, the predicted effect on different products is mixed. Acceptance for last month's price increase has been gradual for rebar mills, but with less than a week to go before scrap pricing comes out, rebar buyers shed some of their previous hesitancy and spot offers were seen at only $0.50 cwt. ($11/mt or $10/nt) less than official asking prices. Domestic mills took this as a sign that they might succeed with another price increase, and rebar prices are forecasted to absorb most if not all of the scrap increase this month.
Despite wire rod's relatively more stable end-use markets (compared to rebar's ties to construction), rod prices have not firmed up to mill expectations. It might be for that very reason-stable end-use activity means decent inventory levels-that wire buyers have been reluctant to pay the full August increase; they are not desperate for product. For now, many in the industry expect mills to absorb some, but not all of the scrap increase.