Major domestic flat rolled mills have announced a $30 /nt ($33 /mt or $1.50 cwt.) increase for flat rolled products that will go into effect as of January 1. Demand is still a major obstacle, but inventories are now low enough that some buying activity should follow, and at least part of the price increase should be realized.
The mills, which include ArcelorMittal, AK Steel, and Nucor, say that the price hike is necessary to make up for rising raw material costs and strengthening demand. The last price increase domestic flat rolled mills announced only partially materialized.
Flat rolled price hikes were anticipated to occur in the first quarter, though this announcement came a bit earlier than expected. Most buyers believe this price hike was made for the same reason that the $30 /nt October price increase, announced by domestic mills in August, was made -- to jump-start the sluggish market into action.
Since there are still no obvious signs that demand has picked up, this price hike is meeting similar skepticism from buyers, and it is not a certainty that customers will accept the full increase. At least some of the increase is expected to be absorbed by the market in the coming weeks, though there is a good chance that, like the October price hike, it will only gain partial acceptance.
For now, most most domestic offers for hot rolled coils continue to range from $25.50 cwt. to $27.50 cwt. ($562 /mt to $606 /mt or $510 /nt to $550 /nt) while most offers for cold rolled coils still range from $29.00 cwt to $30.00 cwt. ($639 /mt to $661 /mt or $580 /nt to $600 /nt), based on ex-works prices in the Midwest.
In terms of demand, flat rolled buyers say that the market is "boring" right now, and mills are hiking prices since sales are on "cruise control" at a very low speed. Recent economic data show that the housing market will remain depressed in 2008, and related flat rolled-consuming sectors like appliances will inevitably suffer. There is some optimism that the automotive sector will pick up next year, but with Chrysler this week announcing it will cut back production next year, eliminating up to 12,000 jobs and four vehicles from its lineup, a bull market certainly isn't expected for automotive in '08.
But even with the lackluster demand, the January price may very well be successful for two reasons: the low service center inventories and the absence of imports from the market. For the last several months, flat rolled service center inventories have shown month-on-month and year-on-year declines (In September, service center inventories were down an estimated 21 percent compared to September 2006), and import arrivals have become increasingly rare. There are still some imports coming in from long-term contract deals, or HRC for cold rolling mills from the affiliate overseas mills, but traders tell SteelOrbis that there are virtually no new import offers available for the spot market. The domestic suppliers are now the only game in town.
Looking to next year, it is believed that flat rolled availability will tighten up even more, as the dollar is expected to stay weak in relation to other currencies, and ocean freight rates should remain high, which will continue to keep out imports. US Steel CEO John Surma echoed this sentiment during the company's Q3 earnings conference call, saying "Very high ocean freight rates, the relatively weak US dollar, high scrap prices, and the prospects for a significant increase in the seaborne iron ore price has us cautiously optimistic that the North American flat rolled market could be poised for some improvement."
The ITC's recent decision to continue antidumping duties for hot rolled coils from six countries will also continue to restrict imports.
For these reasons, the general sentiment in the market is that only a recession could prevent domestic prices from rising next year. Fortunately, recent economic data do not point to this worst-case scenario, with the third quarter GDP growth rate coming in at a surprisingly high 3.9 percent. However, since Q4 GDP growth is not expected to come in at much higher than one percent, John Surma is right to only be "cautiously optimistic."