Weekly US roundup: To stock or not to stock—that is the question

Monday, 30 August 2010 02:03:34 (GMT+3)   |  
       

Here we go again.  Raw materials costs are soaring, end-use demand is lagging, and everyone in the steel industry is scrambling, wondering if they should stock up before further scrap increases even though there's not enough demand to justify higher inventories.

Current speculation for September scrap increases range from $30-$50/long ton for shredded, $20-$40/lt for HMS I, with a smaller hike for busheling, if it goes up at all.  Most of the price push can be attributed high export volumes and low scrap supply throughout the US, especially on the East Coast.  Demolition activity is down, and old cars are not filling up junk yards the way they did a year ago during the "Cash for Clunkers" program.

The result--swelling scrap prices--have left many steelmakers in a pinch.  Domestic mills realize that current end-use demand levels don't exactly support higher prices, but they can't exactly afford to absorb the costs.  Distributors and service centers are also between a rock and a hard place; they can't justify large inventories, but they do see the value in stocking up ahead of price increases.

Rebar, arguably the slowest-moving long product in the market right now, has experienced resistance to the August-announced price increases, but the closer September gets, the more willing rebar buyers are to accept mill offering prices before they rise again.

Another sign of rebar trending up is the corresponding rise in prices for wire mesh--rebar's direct competition.  As for mesh's parent product, wire rod, a steady flow of demand from the automotive and appliance sectors has balanced out sluggish construction demand, putting wire rod in a better position than other long products.   Due to different prices increases from different mills, the offering range for domestic rod started out wide, but narrowed this week to a level most buyers were willing to pay.  However, buyers didn't necessarily boost inventories ahead of the price increases, but they do have relatively decent stock levels--not too much, not too little.  If mills increase prices next month to match the full scrap increase, as many predict they will, customers might have a better position to negotiate.

In other longs news, the wide flange beam (WFB) market is currently so tepid that many end-use customers had no idea there was even an increase announced this month.  WFB mills are, for the most part, sticking to the higher prices even though business is lackluster, but service centers, feeling the brunt of scant consumption levels, have been cutting prices on anything worth quoting.  For truckload or larger orders, they are willing to sell at published mill replacement costs, so their customers have been virtually unaffected by the recent increase. 

As for flats, previously announced price increases for US domestic hot and cold rolled coil (HRC and CRC) were partially absorbed, only to partially falter in a span of about seven days.  The general word on the street is that buyers have resumed a position of not buying, because while several placed orders a few weeks ago with the anticipation that prices were going up, fears that things are beginning to slip solidly in the other direction are becoming more prevalent.   Compound that with the "what will it take to get an order" sales tactics being utilized by some mill salespeople, and well,  it's safe to say that service centers are (rightfully so) a bit more skittish in spending their dollars than they were two weeks ago.

Coated products are not doing much better.  The virtual cat fight between hot dipped galvanized (HDG) mills and service centers continues on, with mills attempting to push through previously announced increases, seemingly unwilling to accept that order activity has yet to catch up with production levels.  Unfortunately for mills, lead times for domestic HDG have once again faltered; previously reported five to six week lead times have fallen into a more realistic range of four to five.  Another challenge was the absence of Friday's anticipated price increase announcement for products within the flats sector.  SteelOrbis has learned that one mill has already rolled over pricing through October, while others are still evaluating their position.  For now, US domestic HDG base prices will remain neutral, with the expectation that this trend will continue through the next week, as buyers watch-and-wait, holding their purse strings until the market becomes more clear.

Along with uncoated flat product prices, domestic slab prices increased for September deliveries but began to soften within a week.  While rolling mills are expected to raise prices next month, the increased scrap costs are likely to only stave off slab price slippage.  There is some slab purchasing activity in the market, but transactions are projected to become fewer toward the fourth quarter.  As demand is usually low in the fourth quarter due to holidays and most companies closing their fiscal year, companies will try to maintain inventories at low levels.  Also, with the uncertain market situation, re-rollers might hesitate to replenish their inventory in large amounts.


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