US flat rolled market – Outlook for the fourth quarter

By now, steel professionals in the flat rolled market concede that domestic flat rolled prices will slip some in the fourth quarter. However, there are several indications that the price reductions from most domestic mills will only be slight. The domestic flat rolled industry has to contend with rising inventories, a slowing economy, lower import pricing, and the increasing amount of global production. However, these factors are not necessarily a death sentence for flat rolled pricing. Demand for flat rolled products is still strong, and we have only seen very slight price slippage from peak levels in July. Also, it is expected that mills will scale back production with planned maintenance outages in the fourth quarter. Some second- and third-tier mills have started to offer some discounts, but at this point, it looks like the big three domestic producers will do everything they can to keep prices fairly stable. However, it is unlikely that current domestic flat rolled prices could be maintained if scrap prices take another dip, like they did at the beginning of August. The market is stable, but not strong enough to support an increase in base prices to offset a decrease in the scrap surcharge. Since the scrap market has been rather volatile in the past several weeks, the flat rolled market has been anxiously anticipating indications of September busheling scrap prices. Then this week, to the surprise of many, Ford's auto bundles were auctioned off for prices approximately $40 /long ton higher than they were last month. Expectations were that any increase would be much more modest. While factory bundle pricing does not translate directly to scrap pricing, it is a good indication of the general direction of the scrap market. Still, there's no telling yet what scrap prices will do in the next few months. Another factor that will affect flat rolled pricing is the health of the automotive sector in the fourth quarter. While the automotive sector isn't exactly booming, as of now it looks like it will remain decent into the fourth quarter. Ford announced this month it has planned some temporary production cuts due to weaker demand for its trucks and SUVs, but analysts say that this will only have a slight affect on the overall demand for steel from the automotive sector. For now, the pricing trend for domestic flat rolled products remains slightly down, and domestic offers for hot rolled coils remain at a range of $31.00 cwt. to $32.00 cwt. ($683 /mt to $705 /mt or $620 /nt to $640 /nt) FOB mill, while domestic cold rolled offers range from $36.50 cwt. to $37.50 cwt. ($805 /mt to $827 /mt or $730 /nt to $760 /nt) FOB mill. The import pricing trend remains slightly down, though there are signs of rebound in some parts of the world, so this downward trend might not last for long. But overall, we have seen some further price deterioration in the past two weeks, from some sources more than others. Most offers for hot rolled coils still range from $29.00 cwt. to $30.00 cwt. ($639 /mt to $661 /mt or $580 /nt to $600 /nt) FOB loaded truck, US Gulf ports, but there are some offers of Russian origin that are under $28.00 cwt. ($617 /mt or $560 /nt). Import offers for cold rolled coils have slipped by approximately $1.00 cwt. ($20 /nt or $22 /mt) in the past two weeks, now ranging from $32.00 cwt. to $33.00 cwt. ($705 /mt to $728 /mt or $640 /nt to $660 /nt) ) FOB loaded truck, US Gulf and West Coast ports. The import cold rolled market remains slightly weaker than the hot rolled market. There are a plethora of imports coming in right now, however, not as much material will arrive in the US after September. For hot rolled in particular, most Russian shipments will end in September, and only a limited amount of material will arrive from mills in Egypt, Turkey, and India. This should take off some of the pressure for domestic mills to lower prices and should allow inventories to firm up some by the beginning of 2007.