It came as a shock to no one that scrap prices fell this month, but until mills started making announcements, many in the industry wondered if they would take the hit and lower prices or try to keep prices level. While the results varied among steel products, the overall condition of the industry is undeniably soft.
Flat product mills saw spot pricing slip through their fingers week after week following the scrap announcement, and their continued, inexplicably high capacity rates didn't help. Demand for hot rolled coil (HRC) and cold rolled coil (CRC) is relatively steady, but the market is oversaturated with product, and lead times are dropping to unprecedented time frames-two to three weeks, with some mills promising one week from order to delivery. Prices are widely believed to be close to bottoming, which has spurred many buyers to attempt contracting orders with today's prices for 2011 first-quarter delivery. Mills are willing to play along; they'll do anything to boost order books.
Spot prices for coated flats also ticked down across the board since last week, leaving buyers feeling increasingly hesitant when it comes to placing orders beyond what's absolutely needed. "I don't know of anyone who is taking any risks," said one Midwest service center. "The last thing any of us want is to get stuck with high priced steel, and the only orders being placed right now are to plug inventory holes."
Other flat-related products are not doing much better. With the slippage in pricing for US domestic HRC and the October reduction in scrap, the September price increase announcement for domestic hollow structural section (HSS), which touted "increased production cost" has come and gone. "That increase has left the building with Elvis," said one buyer in the South. "All the feedback was negative, so transaction pricing hasn't moved." And while it's been reported that a couple of mills have already rescinded, no one has yet to put it in writing.
As for long products, the scrap announcement generated a mixed bag of results. With some products, such as rebar and wide flange beams (WFB), mills offset the raw material surcharge (RMS) decrease ($1.50 cwt.) with a base price increase, keeping transaction prices level. However, even though stable rebar prices were mostly welcomed in the market, some concerns remain. There is still a $1.50 cwt. cushion that mills will be able to use to cut deals if they want. One East Coast distributor expressed his fear that mills might "get aggressive with their price-cutting for individual customers," which could throw the currently stable rebar prices out of alignment.
Other products saw a definitive, yet expected drop in transaction prices, such as merchant bar. Domestic merchant bar demand is weak and somewhat attractive import offers have been trickling in, so even though mills would like to hang on to most of the September price increase, chances are they'll be pressured to take a hit.
Wire rod is also expected to drop (nothing has been announced as of press time), because mills didn't have much success with their price hike in September-on average, customers only accepted about $0.50 cwt. of the $1.50 cwt. increase.
Similar to the US scrap market, the domestic billet market is slow and prices are softening. Not many transactions were seen in the market, as re-rollers are trying to maintain low billet inventories during the fourth quarter. However, there is abundant billet supply in the market, allowing re-rollers to buy whatever tonnage they may need, and at reduced prices from last month. Looking forward to next month, market sources expect domestic billet prices to trend sideways or a little further down.
While the overall trend for US steel prices seems to be on a downward slope, a possible turnaround is on the horizon. Market sources anticipate the US scrap prices will go sideways or slightly up next month, as long as domestic mills return to secure their scrap inventories for winter and Turkish producers continue to their steady purchasing activity from the US.