US domestic flats market shell-shocked after $120/nt in announced increases

The domestic flats market has proven itself volatile once again, as one major steel company issued "price adjustments" for the third time in eight days this past Monday, and other mills are expected to follow suit.

After increasing prices by a total of $4.00 cwt. ($44/mt or $40/nt) last week, on December 6 Nucor issued an additional price adjustment citing "rapidly increasing raw material costs and improving market conditions," bringing Nucor's total to $6.00 cwt. ($132/mt or $120/nt) in increases in just eight days. By Thursday, AK Steel rolled out its own increase of $40/nt on its flat-rolled products, and although other mills have yet to issue further "adjustments" so far, most anticipate that they will.

The additional $40/nt has not affected transaction ranges yet, however, the expectation is that prices will move higher as lead times extend further outward. Lead times on hot rolled coil (HRC) are currently four-to-eight weeks, while cold rolled coil (CRC) lead times are now six-to-eight, and in some cases eight-to-ten weeks.
 
Reactions to the escalating prices vary, as one Southeast service center concluded that because "scrap is already up about $40-$50/lt this week, the increases are significant, but it should be expected." However, a Southern distributor had a different view, commenting that "$120/nt in a week is outrageous; the second increase hasn't even had enough time to settle, and we're already talking about a third."

At the moment, Nucor's base price is approximately $34.00 cwt. ($750/mt or 680/nt) for HRC, and $39.00 cwt. ($860/mt or $780/nt) for CRC, and reports indicate some other mills have already rescinded prior offers and are expected to announce their own "price adjustments" sooner rather than later. Transaction prices have been increasing at a quickening pace, and although there do not appear to be any orders being placed at the above asking prices just yet, what the flat-rolled industry is experiencing is an increase in hedge buying from purchasing managers who are building inventory in preparation for the higher spot prices. The general consensus from sources indicates that service center inventory levels are now at about 2.5 to 3.5 months, taking some distributors into March, when many predict prices will have begun to tick down.

So for now, HRC and CRC transaction ranges remain at last week's previously reported levels, although the majority of transactions are now occurring at the higher end of the ranges, and deals below the lowest end of the ranges are no longer available. HRC prices are lingering at $30.00-$32.00 cwt. ($661-$705/mt or $600-$640/nt) ex-Midwest mill, while ex-mill CRC prices are still $35.00-$37.00 cwt. ($772-$816/mt or $700-$740/nt).

Looking offshore, Russian mills have now become more definitive in their HRC offers, with an established range of $32.00-$34.00 cwt. ($705-$750/mt or $640-$680/nt) duty-paid FOB loaded truck in US Gulf ports for March/April delivery. South of the border, Mexican offers of HRC and CRC have increased $1.00-$2.00 cwt. ($22-$44/mt or $20-$40/nt) and currently mirror US domestic prices.

**Duty-paid FOB loaded truck in US Gulf ports