Although US flat rolled producers announced recently that they would increase prices by $20 /nt to $30 /nt for October shipments, buyers are skeptical as to whether the market is strong enough to accept a price hike.
While scrap costs have come up slightly in the last two months and inventories have come down, there are no signs of any real improvement in demand. Data compiled by the Metals Service Center Institute (MSCI) show that in July, while US service center inventories decreased to 13.4 million tons, 12 percent lower than July 2006, service center shipments decreased to 4.2 million tons, 6.3 percent lower than July 2006, and month-on-hand supplies did not go down, staying flat from June levels of 3.2 months.
Since there aren't any indications of an up-tick in demand, many market players suspect that the October price increases are just a tool to give a perception of strength in the market.
One service center purchasing agent gave his opinion to SteelOrbis this week concerning the price increases, "I think it's a market ploy, a psychological increase. They're trying to stop the slow bleeding. The missing component is demand."
A flat rolled trader with a similar point of view told SO, "What I think it is, is a gambit to kick the market in some kind of action because it's been lulling around in nowheres-ville for the last couple of months. It's all psychological."
The lack of import arrivals in recent months as well as the domestic mills' exporting activity (June data show 102,886 mt of hot rolled coil exports, with the most non-NAFTA destined exports going to Portugal and Spain) have helped the domestic flats market somewhat, but no one is rushing to replenish their inventories just yet. Sources say that the reason why mills are waiting until October to raise prices rather than raising them in September is that they are unsure if the market will really take to the increase and so are "testing the waters" to gauge the market's reaction.
The overall outlook for the domestic flat rolled market is not all that bad; while most players are hesitant to agree that prices are trending back up again, the consensus is that prices have definitely bottomed out. In the short term, the market will likely see some stability based on the announcements, with the mills' move having its intended effect of bolstering the market somewhat. In the fourth quarter and into the first quarter of next year, it is safe to say that if the mills continue to closely control production, prices should finally register some modest improvement.
For now, most domestic offers for hot rolled coils are unchanged from recent levels, continuing to range from $24.50 cwt. to $26.50 cwt. ($540 /mt to $584 /mt or $490 /nt to $530 /nt) FOB mill, and domestic cold rolled offers still range from $28.00 cwt. to $29.00 cwt. ($617 /mt to $639 /mt or $560 /nt to $580 /nt) FOB mill.
The market for import flat rolled still remains pretty quiet, with Mexican offers being the only imports competitive enough to gain much interest. Even so, Mexican hot rolled is still priced higher than domestic in most cases and does not make up a very large portion of the total import offers.
Also, most other foreign sources are still able to get higher returns by selling to other markets and are not very interested in selling to the US market. On the whole, the global flats markets have been improving, so there isn't much chance that import prices will come down anytime soon. Still, import buying has not slowed to a complete halt as most import buyers don't want to stop purchasing imports entirely: some importing still continues, with Brazil being a major import source of cold rolled and South Korea being a main foreign source of hot rolled in recent months.
Data from the US Import Administration show that in August (through August 28), hot rolled import totals continued to decline to a yearly low of 139,382 mt. Most imports came from: South Korea (58,681 mt), Canada (19,017 mt), Australia (17,618 mt), Netherlands (14,406 mt), and France (5,773 mt).
Cold rolled imports totaled 62,237 mt in August, also a monthly low for the year, with the most tonnage coming from: Canada (10,980 mt), China (9,057 mt), Netherlands (8,537 mt), Japan (6,917 mt), and Taiwan (6,272 mt).