US domestic flats prices on the rise ahead of February scrap announcement

Mills have been increasingly successful at booking orders at higher prices as order activity remains steady in the US domestic flats market.

Flat-rolled bookings at US mills remain strong as a number of mills are close to closing March order books, while others, such as ArcelorMittal USA, have already informed customers that they have no more room in their order books for March deliveries. Service centers are not, however, faring as well, and distributors note uncertainty over passing along higher prices to end-users over the upcoming months.

Daily shipments from service centers of flat-rolled products fell 20.7 percent from 95,700 nt in daily shipments in November to 79,300 daily shipments last month-the lowest level since December 2009 according to the most recent data from the Metal Service Center Institute (MSCI). Meanwhile, month-on-hand inventory levels rose from 2.3 months in November to 2.6 last month. The significant drops in shipments reflect the lackluster end-use demand last month, and increased hedge buying against the expected run-up in prices in December and January.

Distributors' biggest concern is scrap trends, since busheling prices are expected to increase once again next month. And so, price increase announcements have once again entered the flat-rolled market. AK Steel increased flat-rolled base prices by $2.50 cwt. ($55/mt or $50/nt) on Thursday, January 20; the $50/nt increase surpasses even the highest predictions for scrap prices in February as most anticipate prices will increase only $10-$20/lt, if at all.  The recently-announced increase puts AK's benchmark hot rolled coil (HRC) and cold rolled coil (CRC) prices at $42.50 cwt. ($937/mt or $850/nt) and $47.50 cwt. ($1,047/mt or $950/nt), respectively, ex-Midwest mill, and lead times into mid-to-late March for both products. Since flat-rolled mills have encountered little-to-no resistance at imposing the past six increases (since just after Thanksgiving), the latest round is coming as no surprise to industry players who note that mills have no reason not to keep pushing for more increases until they are met with enough resistance from buyers; But until then, order activity is steady, and customers are paying higher prices.

The most commonly reported spot ranges for HRC and CRC have narrowed since our last report a week ago, coming up $1.00 cwt. ($22/mt or $20/nt) on the low end, as sources indicate that average buyers with standard orders of HRC and CRC are paying most mills' asking price of $40.00 cwt. ($882/mt or $800/nt) and $45.00 cwt. ($992/mt or $900/nt), respectively, ex-Midwest mill, while larger buyers with established mill relationships are paying approximately $39.00 cwt. ($860/mt or $780/nt) for HRC with a few lingering deals just below this week's ranges still being reported. Once other mills follow AK Steel's lead with the latest increase, those few remaining deals will dissipate, as customers with new orders will be forced to pay $40.00 cwt.-plus on all new orders.

The continually rising US prices have pushed many US flat-rolled buyers to inquire about offshore offers; however traders report difficulty convincing US buyers to actually book significant tons of imported product. The largest obstacle remains convincing buyers that US prices won't begin to come down until after April, as delivery dates on current import offers are now into mid-to-late Q2.

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