Steel Producer Price Increases Supported by High Scrap Prices?

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Lately, our most popular inbound phone call involves our soon-to-be-released GOES Index followed by the rant/request for our thoughts on the latest steel mill price increases. That call basically goes like this: “Lisa, the mills have raised prices again, but I don’t see how the raw material prices support the increase. What do you think?

By habit I tend to say, “let me take a look and I’ll write a post on it.” So, we will now attempt to answer the question does the underlying raw material data support the recently announced mill price hikes? We could argue both yes and no.

The Case for Yes (Price Increases Are Justified)

As a fan of history, one need only look back over the past three years to see that scrap prices (though we’ll only show HMS #1 as an example) remain stubbornly high. Now granted, we haven’t seen any great price movement in August. In fact, according to The Steel Index, domestic shredded scrap prices have traded within a relatively tight spread — a low of $440/long ton in May to a high of $463/long ton in July, only to settle somewhere in the low $450’s/long ton now.

Sources: and MetalMiner

The Case for No (Price Increases Not Justified)

Obviously, with no obvious upward sloping line, buying organizations may quickly come to the conclusion that a price increase seems out of line. However, when one considers seasonality and the timing as to when steel prices peak and trough within a calendar year, a different story starts to emerge. First the factoids:

  1. Steel prices bottomed in mid-August
  2. Turkey has recently experienced strong domestic demand for rebar, according to The Steel Index, and Turkish demand serves as a great proxy for steel scrap price direction
  3. Demand often picks up after Labor Day

As another example, take a look at this nearly two-and-a-half-year price chart of hot rolled coil prices:

Sources: and MetalMiner

Price troughs have occurred in the summer months (July/August) as well as in the month of December (or November). What follows looks like an upward price ascent immediately following each trough. Although scrap prices have held steady (remember, they remain historically high) and we haven’t even commented on either coking coal or iron ore (other key raw materials), steel prices have already bottomed. And if history tells us anything, mills may have taken their pricing queues from that. When we hear mills talk about “market conditions,” we can infer they have analyzed similar trends; at least we can say that with some reasonableness based on the past couple of years.

Steel producers believe “market conditions may appear ripe for a price increase. Of course that only holds true if demand holds true. So you tell us how does demand look?

–Lisa Reisman

Comments (2)

  1. Joe Perillo says:

    Hi Lisa, I have head from two sources that the cyclical steel price dip that occurs in Nov/Dec (also seen in your chart) has occurred early this year. Do think this is the case.

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