The Steel Market Watch the Warning Signs

As we finalize our Q3 report on steel for our Price Perspectives series we thought we would share some of the highlights of our research as well as some recent announcements from some of the largest domestic steel producers. Last week, Reuters ran a story entitled: Global Steelmakers Paint Gloomy Picture. According to the article, US Steel announced both lower shipments and slower order rates for the upcoming quarter as it idled one furnace in Serbia and put a second one on maintenance in Slovakia. For the US market, US Steel also announced 3rd quarter production rates will likely decline from second quarter rates. In addition, AK Steel also announced it would cut capacity in the US due to declining automotive and construction demand. According to the AISI, capacity utilization rates for much of the second quarter ran at 70-73%.

In our price perspectives research, we speculated back in February when we launched the first report, that steel producers may have brought too much capacity on stream too quickly. It appears as though others have recognized that now too. We will continue to closely monitor capacity utilization rates as the industry attempts to tightly manage supply with demand.

What signals or road signs do we pay close attention to? Actually, we examine over 28 general variables that impact all metals and 14 specific variables for steel but we can often pick up immediate pricing changes by examining these four variables below:

  • Lead times
  • Order books/shipments
  • Capacity utilization
  • *Rate and magnitude of price changes

The rate increases had come at a fast and furious pace during the first quarter of this year. The rate of increase started to slow by the middle of May and declines set in by the end of May. By the beginning of this month, prices fell by 3-5% across a range of steel products, quite substantially. So we might think that much of the data would suggest further price declines. But the public announcements speak to the contrary. AK Steel announced a price increase on Monday of $40/ton for carbon products. Severstal has also announced price increases in the $30-40/ton range for a range of carbon products as well including: hot rolled bands, cold rolled products, HDG products, galvalume etc. SteelMarketUpdate a steel flat products industry watcher has switched their pricing momentum indicator from falling to neutral.

But as we all know, the proof is in the pudding. The question to ask remains: will the price increases stick? Now that is the real question. Through mid-July, they didn’t. Will they now? Drop us a line.

–Lisa Reisman

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