High inventories cast doubt on effectiveness of US flat-rolled price increase

With service center buyers sitting on high inventory levels, US domestic flats mills are unlikely to collect their full price increase just yet.

After four straight weeks of declines, US domestic hot rolled coil (HRC) and cold rolled coil (CRC) spot prices have stabilized in the last week in the range of $31.00-$33.00 cwt. ($683-$728/mt or $620-$660/nt) and $36.00-$38.00 cwt. ($794-$838/mt or $720-$760/nt), respectively, both ex-Midwest mill. The neutral move comes following transaction price increase announcements of $3.00 cwt. ($66/mt or $60/nt) from at least seven major domestic flats mills last Wednesday and Thursday, some effective immediately. While sources indicate that a few smaller orders have been placed with a marginal increase--but nowhere near the full $3.00 cwt.--most orders are still being placed at previously reported spot prices.

While actual domestic spot prices have not changed in the last week, order activity levels have picked up as buyers move to place orders at current spot prices in case mills do start to get some of their increase in the coming weeks. However, because the gap between supply levels (US raw steel production rose to the highest level so far in 2011 last week) and market demand has yet to narrow, how much of the increase, if anything, will actually be reflected in spot prices is yet to be determined, especially considering the latest data from the Metals Service Center Institute (MSCI). MSCI data indicate that flat-rolled service center inventories jumped from two months-on-hand in June to 2.6 months-on-hand in July as daily shipments fell from 104,500 nt to 97,000 nt, indicating that service center demand levels for more flat-rolled steel is probably minimal, and buyers are in no hurry to place orders.

Service center sources tell SteelOrbis that higher inventory levels (5.08 million nt) in July were not only due to seasonally slow demand but were also a result of high levels of arriving imports. US Steel Import Monitoring and Analysis (SIMA) data show that the 290,908 mt (license data) of hot rolled sheet imports arriving into the US in July was the highest level in over two years, and a substantial increase from the 204,671 mt (census data) arriving in June. Additionally, 102,755 mt of imported cold rolled sheet arrived in the US in July compared to 94,974 mt in June.

Meanwhile, current import activity is still rather quiet. Traders tell SteelOrbis that Korean and Mexican flats mills have held off adjusting their offers for the US until the US domestic price trend sorts itself out. On the other hand, after weeks of staying neutral, Chinese CRC offer prices for the US have increased $1.00 cwt. ($22/mt or $20/nt) since last week to $42.00-$43.00 cwt. ($926-$948/mt or $840-$860/nt) DDP loaded truck in US West Coast ports, although it's too early to tell whether or not Chinese mills will stick to the increase considering already minimal US interest in imports.

**DDP loaded truck in US West Coast ports