Back in early October we published a post entitled: The Case For Steel Price Increases Weakens. We hesitated slightly about calling any outright price declines for several reasons. Ironically, only a month later, we now have multiple mills announcing price increases. AK Steel, will raise base prices for new HRC orders by $30/ton and CRC and coated products by $40/ton effective immediately according to BusinessWeek. Severstal according to its own website, also raised prices for HRC, CRC and galvanized products by $40/ton effective immediately for shipments through end-December (the company has also announced price increases for January shipments). Finally, Nucor also announced price increases last week, according to Platts “a minimum $30/short ton increase in the base prices of its hot-rolled coil, cold-rolled coil and galvanized products.
In our post of October 4, we called out four conditions that would drive steel prices higher. These drivers include the following:
- Raw material costs to remain high and volatile
- Domestic producers must continue to closely monitor production rates. At the time we suggested that though the mills were carefully monitoring production, we felt that with the addition of ThyssenKrupp to the mix late in 2010, producers may have less success in monitoring production rates.
- An improvement in order books from mills. At the time we said we don’t see a lot of support for that based on recent earnings guidance from several producers.
- Finally, rising steel prices require strong demand from key manufacturing sectors
So where do we stand today on November 9?
Raw material costs do indeed remain volatile and have moved up in recent weeks. Whether one examines iron ore fines (now up to $157.20/dry metric ton for 62% Fe fines or $126.2/dry metric ton for 58% fines) according to The Steel Index or scrap prices according to October 28 data released by SteelBenchmarker, (shredded scrap is at $334/metric ton, No 1 HMS at $304/metric ton and busheling scrap at $377/metric ton) raw materials have crept up from September and early October numbers. As for coking coal, my colleague Stuart reported recently these prices will likely increase after this quarter. Score 1 for rising steel raw material costs.
Turning to domestic production, we know from the AISI that steel capacity utilization rates through November 6 dropped to 66.8%, only 5.3% higher than the same time period during 2009. Score 1 for domestic producers holding the line on utilization.
In terms of order books from mills the only evidence we have of rising order books involves lead times. Looking at data from The Steel Index we see a mixed bag on lead times. Lead times appear to have extended for HRC, CRC and HDG but appear to have shortened for plate and rebar. Generally speaking, longer lead times suggest larger order books. Score .5 points for lead times supporting price increases.
Last, we turn to demand from large steel-buying OEMs. We find this a challenging metric to gauge. On the one hand, we saw some better automotive numbers out of October and anecdotally distributors point to very low customer inventories (signaling some re-stocking may appear in the near-term) but the anemic economic recovery and lousy construction markets will continue to put pressure on demand. Score .5 points from key steel buying sectors.
What do our signals tell us? We may see some continued price strength through the end of Q4 but after re-stocking, we’ll need some cheery economic news to sustain the upward price momentum.
Perhaps we can solicit some thoughts from MetalMiner readers via the MetalMiner Steel Market Pulse series (see survey below). We will publish results on Friday.