Steel Scene flat rolled panel: Learning to cope in the current environment
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Greg Goad, General Manager of Commercial for the Southern Region for Severstal North America, said during the flat rolled panel at SteelOrbis' Steel Scene conference in Houston, Texas on May 8 that the overall economic outlook is strong, although there has been a slowdown recently. As for the construction market--which he said has gotten off to an early start this year--we won't really see major improvements for another four to five years.
Goad said that he does not see scrap driving steel prices, but rather demand drives steel prices. In answering audience questions, he said that while scrap prices certainly impact steel prices, there was a long period last year where flat rolled prices were softening while the price of scrap stayed relatively unchanged.
In continuing his discussion on the ways in which the flat rolled market has changed in recent years, Goad said that in today's market, service centers have "learned to run their business with less inventory." Additionally, US buyers now look for a larger disparity between US domestic and import prices when deciding to make an import buy and that threshold appears to be around $100/net ton.
During the question and answer portion, Goad commented on the often cited "self-fulfilling prophecy" in the flat rolled market, explaining that price movements are more about inventories and lead times than anything else, and while it appears as though customers' expectations of future prices drives market prices, it is not a cause and effect situation. Although when customers stop buying, "mills panic and lower their price...it's not about anything other than lead times." When it appears market prices are bottoming--in the last three years that has been in November--buyers try to hold off their purchases until the market bottoms, and "people miss it."
Dolph Simon, General Manager of O'Neal Flat Rolled Metals, added that "in our business it's about demand, demand, demand" and "if you've got enough inventory, you're less likely to buy because you're not anticipating a surge...we're all keeping our inventories so lean these days." Even though he said it is a "subtle combination between psychology and demand," the decision to buy or not buy always comes down to demand.
David Miller, President of Daniel International Steel, Inc., added that the pattern of buyers holding off purchases when they believe prices are likely to soften is one that will be difficult to change, and it's not going away anytime soon.
During his presentation about the import flat rolled market, Miller said that a large amount of imports have hit US ports recently, still "trying to find a home," but in two to three months, much of that will disappear. Import sales have been a challenge as of late, he said, because price cycles are only about three to four months now, compared to 12 to 18 months in years past.
China has recently announced price increases, he noted, but those mills are "just trying to keep prices stable" and are struggling as to where they will send some of the steel they will produce.