Steel Purchasing in a Sideways Market

Global steel plate prices continue to move sideways. But what does this mean for steel buyers? Moreover, how should one map out their metal spend? In a sideways market, the answers are not always as clear as one might assume.

Indeed, less volatility is good in some ways, and a nuisance in others. After all, when prices are swinging up or down, they provide obvious signals that procurement professionals can use to immediately adjust their spending strategies. The same can’t be said of a sideways market with no clear price direction.

So, as a steel buyer, how does one leverage their spend most efficiently?

Rule of Thumb for Sideways Steel Prices: Spot Purchasing

When steel prices move sideways, procurement experts should make as many “spot” purchases as feasible rather than purchasing ahead. Instead of locking in a price for future delivery, spot purchases refer to purchasing steel at the current market price. When lower costs are available, this method assists steel purchasers by taking advantage of prices from where they currently sit. If steel prices fall in the future, this method can help purchasers avoid overpaying.

Steel procurement professionals should also consider diversifying their suppliers. This way, buyers are not stuck with only one option. It also allows companies to take advantage of pricing variations between suppliers while also ensuring a consistent supply of steel. Consider the following strategies: When analysts expect the steel market will remain sideways, options techniques provide traders with a unique approach to profit.

See how MetalMiner’s should-cost models can help you generate more revenue. Read here

Other Hedging and Trading Options

 

• • Consider short straddling: This strategy involves selling both a call and a put option with the same strike price and expiration date. It can help produce profits when the steel price remains within a certain range.

• • Watch for breakouts: Many steel traders focus on identifying horizontal price channels containing a sideways trend. In situations where steel prices regularly rebound from support and resistance, traders can anticipate breakouts either above or below the trading range. They can then attempt to profit as the price moves between support and resistance within the sideways drift.

• • Clear entries and exits: A sideways market usually has clearly defined support and resistance levels. This removes ambiguity about where to place entries and exits.

• • Steel buyers should make sure to set a profit target at resistance and a stop-loss order placed below support. To help, we suggest you review MetalMiner’s free article Squeezing Out Costs in a Falling Demand Market.

What Steel Buyers Should NOT Do in a Sideways Market

Steel purchasers should not make major purchases or enter into long-term contracts in a sideways market. This is because prices in a sideways market can change on a dime, and buyers may wind up paying more than the current market price.

MetalMiner customers have saved millions of dollars by following MetalMiner’s industrial buying strategies. Take a look at MetalMiner’s track record.