Steel Market Update News

11 / 8 / 2009 - Economic forecast for 2010 and beyond by Alan Beaulieu, Chief Economist for the Institute for Trend Research

Sun, 08 Nov 2009 05:00:00 -0500

Institute for Trend Research/HARDI call for Slow Recovery to Recession

Alan Beaulieu, Chief Economists with the Institute for Trend Research (ITR) is forecasting the U.S. will experience a very slow and gradual economic recovery beginning in 2010. He also went on to tell the packed audience at this year’s annual HARDI conference, the “recession has dealt us wealth creating opportunities.”

Mr. Beaulieu told the audience that the unemployment rate is “a useless piece of economic information” and went on to say, “It’s going to be painfully high at least until 2010. This is going to be a jobless recovery. Those who are calling for a “V” [shaped] recovery are wrong. Those who believe it is a “W” – well he lost – get over it.”

ITR called for 2010 to be essentially a “flat” year after which things will get better “for real.” The economic forecasting company moved their trough projections [The bottom] a little further out to February 2010.

Government intervention into the economy has “created uncertainty” as banks try to deal with a government changing the rules on the fly. At the same time both sides of the aisle (Republicans and Democrats) are screaming foul at those banks which are getting rich off taxpayers money. Mr. Beaulieu chastised the politicians and reminded the audience, “Banks are getting rich. Poor banks don’t lend money – rich one’s do.”

ITR is forecasting continued bank failures “in the hundreds” during 2010.

Inflation is coming according to Mr. Beaulieu, “the world knows inflation is coming. The world knows the dollar will collapse.” [due to the U.S. debt load and economic policies – no matter what party is in control].

The result will be higher taxes – “you need to plan on higher taxes in 2011, 2012 and 2013.”

The Good News

The Institute for Trend Research pointed out 7 key economic indicators are now all pointing to a recovery. As an economist, Mr. Beaulieu told the audience they are ecstatic if they get three indicators moving in concert. So, the fact that seven are doing so confirms to them (and he pointed out ITR has a 96% success rate in economic forecasting going back to 1948) a recovery will shortly be on the way.

The recovery will be a global recovery which will be good for American and Canadian business –especially with a weakened (but not too weak) U.S. dollar which makes our exports more attractive to the rest of the world.

Housing and commercial construction have a long way to go to get back to 2007 levels. When asked by an audience member if 750,000 starts was possible next year he replied “yes” but only with massive government incentives such as the $8,000 first time homebuyer credit and the potential of a $6,500 credit for existing homeowners who have been in their home for at least 5 years. Without government incentives he was less optimistic than most of the other economist that residential will reach the 700,000 start level. He reminded everyone commercial construction recovery will lag the residential construction market by at least one year.

He made a number of recommendations including now is the time to invest in residential real estate due to the low prices and interest rates. Buy it and rent it. You children will be happy that you did. Regarding commercial real estate he felt there will be even better bargains available six months from now.

Mr. Beaulieu told the HARDI audience it may take until 2020 before our stock portfolios get back to the levels they were at in December 2007. He recommended being more selective and investing in the food, medical, security and alternative energy industries.

Longer Term

Demographics work in the U.S. favor as our birth rate is 2.1 and our population is projected to hit 450 million by the year 2050. This means there will need to be more homes and more cars in future years. He told us natural demographics [population growth] will begin to take over around 2012 – and “the future is bright after this rough spot [now through 2011].”

He reminded companies the climb back up takes more cash than on the way down. Companies will need to train their people, invest in customer service which has taken a hit during this recession, they should negotiate union contracts now, begin advertising, re-negotiate long term leases, add new or additional vendors, capital expenditures & acquisitions (use pessimism to your advantage) and he told us, “people will be scared – lead with optimism and have a “can do” attitude. Learn to out sell your competition. Companies who are afraid to act will fall behind.

Institute for Trend Research & HARDI

The Institute for Trend Research is an economic forecasting group which works in concert with HARDI (Heating, Airconditioning, Refrigeration Distributors International) and their member companies in order to better forecast by region. The ITR economists have direct access to the HARDI member’s sales and inventory information on a monthly basis. In SMU’s opinion this provides ITR with actual real time information about the construction side of the industry (both residential and commercial) in each state in the U.S. and their forecast have been remarkably accurate since we began attending HARDI conferences a number of years ago.

About Steel Market Update

Steel Market Update (SMU) follows pricing and trends which can impact the North American flat rolled steel market. We produce a newsletter three times per week and our website is active seven days a week. Please feel free to go to our website at www.steelmarketupdate.com and register for a free trial.

10 / 28 / 2009 - Our market survey and the diversity of our participants

Wed, 28 Oct 2009 04:00:00 -0500

We have a number of new members,trial subscribers and those new to our website who have not been exposed to our SMU market survey and may have questions about it.

We believe our survey to be quite unique in the industry. SMU invites approximately 700 companies involved in the flat rolled steel business to participate in our every other week survey about the flat rolled steel industry. The breakdown between service centers and manufacturers is approximately 50/50 but our ultimate intention is to increase the number of manufacturers to at least 60% of the participants. One of the items which make our survey unique is that over time SMU has qualified most of the invitees to make sure they are actively involved in the flat rolled business and in a position of knowledge.

This week, we added a new question in order to help fine tune our information – we asked those participating to provide information about the industries they serve or products they manufacture. What we are trying to find out is how diverse is our customer base from which we are collecting information and are they representative of the steel market as a whole? We found our industry mix to be quite diverse and we are pleased with the results.

Here are the industries where we had major participation (10 companies or more servicing or manufacturing similar products/industries) indicated by this weeks respondents to our survey:

Major Participation (10 or more companies) = Automotive, Appliance, Metal Building, Residential Construction, Commercial Construction, OEM-HVAC, Mechanical Contractor, Agricultural Products, Roofing, Metal Furniture, Pipe & Tube, Trucks & Trailers, Storage Buildings, Tanks, Water Heaters.

Minor Participation (4 – 9 companies) = Mining (4), Consumer Products – Small Appliances (9).

Other Products Represented = Scrap Metal Processor (1), Conversion Mill (3), Fences (1), Metal Fabrication Shop (1), Lift Trucks (2), Wheels (1), Mailboxes (1), Safety Trench Equipment (1), Lighting Fixtures (1), Ornamental Iron (1), Airline Handling Equipment & Conveyors (1), etc.

We expect the list to grow as this article was written prior to our survey being closed. I will publish the chart later this week on our website in the Media Center section of the site.

SMU has a number of goals with each survey – we want to track trends within the industry – this includes Steel Buyers Sentiment (how do respondents feel about their company’s business now and looking out into the near future), Inventory trends (manufacturing & service center), buying trends, demand trends, pricing trends, lead times and over-all market information. We are also looking for personal observations and comments from the respondents if they are so inclined.

Results are reported in a number of formats – in our newsletter – both email and online version, we publish graphs directly out of the survey provider (which is Survey Monkey) onto our website, we will have information on our Blog and potentially in our Featured News section which you can access on our Home Page – www.steelmarketupdate.com – and you can sign up for a RSS feed (or email feed) when we make a new Blog or Featured News post.

We appreciate all of you who participate as we feel this survey is one of the growing areas of our site and will get only better as we refine the questions and analyze the results in more detail in the future.

If you have any questions about the survey please feel free to ask – info@steelmarketupdate.com.

If you would like to register for a free trial to our newsletter and get full access to all areas of our website you can do so online - www.steelmarketupdate.com.

We publish a portion of the results of our survey in graph form in the Media Center section of our website. Click on the Media Center tab at the top of the screen and then look under the Files section - search gallery - for recent and past graphs as well as other presentations SMU has done in the past.

10 / 27 / 2009 - Some comments from a steel buyer traveling in Asia

Tue, 27 Oct 2009 04:00:00 -0500

SMU happens to have contact with a U.S. based steel buyer traveling in Asia looking for steel export opportunities and getting a feel for the landscape and mood in Asia. Here is a portion of what they had to say late last week:

“Construction appears to be booming around Shanghai. A world expo will be held here in May 2010 and there is much construction ahead of the Expo. Funny thing is you see tons of cranes but very little actual work except on the government projects. A high speed train is being built between Shanghai and Beijing. Everything appears very prosperous and the traffic is almost as bad as India. I heard the China Steel numbers you reported but have been told the larger Chinese mills are more like 520 [$ per metric ton] into Taiwan and that within China the number is more like 460. Mill yesterday said that pricing within China has bottomed and is beginning to rebound. Judging by Shanghai this is believable but I don't know how far this extends.

I have been told that times are really tough in Taiwan as China Steel is demanding prices that are making it hard for rerollers to compete. But still more capacity is coming online. Just at YP China and they have started up 3rd coating line. Seems as if there are a lot of trips planned to Europe over next few weeks as no one likes the $ but economy is worse there than US.

I have been to some rerollers and have not seen what I would consider excess inventory and the lines have been running. However, there seems to me that there is a similar feeling as the summer of 2008 - everyone feeling that the good times would last forever.

As usual the drivers are the best source of information. The average person in Shanghai area earns equivalent of $500 US per month. The average high rise apt (400 sq ft) is US $100K. So where does the average person live?

There has been a lot in local papers about the govt pulling back from stimulation because of concern about a too hot economy. I am told actual inflation is at 15%. The economy is not exporting.”

Clarification Provided by another Asian Source

One of our sources in Asia clarified a couple of the pricing points made by our buyer above. The $520 MT is for RRQ (re-rolling quality) HR. The range of $460-$470 MT domestic Chinese prices is for “simple SS400 (A36) quality”.

Our source provided the following over the weekend as well, “The statement China has bottomed out and starting to rebound. My suggestion, HOLD THAT THOUGHT...
You can see the comments of new capacity coming on line…This is not a good sign John and it will be my number which I advised to you [85 million metric tons of new or revamped steel capacity coming online in China by the end of 1Q 2010].”

For more information about foreign and North American steel prices (with our focus on the North American flat rolled steel market) please feel free to register for a free trial to our newsletter and complete access to our website. You can do so online at www.steelmarketupdate.com

10 / 21 / 2009 - Comments made by Lourenco Goncalves, CEO of Metals USA regarding domestic steel industry

Wed, 21 Oct 2009 04:00:00 -0500

“Lower prices do not create demand” (Lourenco Goncalves, President & CEO Metals USA)

Metals USA conducted an earnings conference call on Monday even though the company has no traded equity (stock) although they do trade their debt and plan on offering an IPO in the future. The conference call had some interesting comments made by Lourenco Goncalves, CEO of the company.

Mr. Goncalves chided the domestic steel industry for claiming to be a low priced producing industry and not concentrating their efforts on exports – especially in a market where supply exceeds domestic demand (which is unusual for the U.S. market as up to this year demand outstripped the ability of the mills to produce all the steel the U.S. is consuming).

Mr. Goncalves believes there is no reason for prices to go down right now. The problem seems to be the domestic mills react too quickly to challenges (or perceived challenges) presented by their customers. He pointed out the process of bringing prices down actually scares away buying customers.

“We expect them [mills] to hold the line on prices so Metals USA can do better in 1Q.”

Metals USA was quite concerned about pricing and how the domestic mills handle price changes. Mr. Goncalves stated, “…there is no underlying reason for mills to be reducing price…but this is my own opinion…they are the ones who make prices…sometimes they [mills] have to fight 3 coils that arrive in the port of Houston and they believe it will take over entire American market. If they do that be my guest. They sell cheaper – we sell cheaper – everybody will lose and we will keep going. It’s their decision not ours.”

Domestic Mills “…they showed no respect….”

Mr. Goncalves had strong opinions regarding the loss of value of service center inventories and the lack of restocking the mills themselves created. Here are his comments:

“…service centers got tired of losing money when the mills allowed prices to go down. I don't see this small increase that you saw between the month of September and the month of August as restocking, because the fluctuation is so small that you can't even call it a trend one way or the other.

So the fact is that the mills did a poor job protecting our inventories, the value of our inventories. Service centers are the biggest customers of the mills. We buy close to 40% of what the mills produce and they showed no respect to the fact that we're carrying a lot of tons and allowed prices to deteriorate to a crazy point.

So, now, it is payback time. Everybody is working learn. Everybody is learning how to work lean. Everybody is planning to continue to work lean.

So I'm not seeing any restocking. For the analysts that were calling, oh, restocking is coming, restocking is coming, restocking is coming think that restocking has not come and they stopped saying that restocking is not coming. Good thing; I appreciate that because restocking is not coming.

Service centers are working leaner and they will be working leaner for a long, long time
until we forget. First we need to forget what the mills did to ourselves and then we will probably go back to the old way of doing business or close to that. But don't expect that short term.”

If you enjoy reading and learning about the North American flat rolled steel industry - if you are interested in steel pricing in North America - or the direction prices are heading - or in specific industries involved in the flat rolled steel business (HR, CR, Galvanized & Galvalume) - you may want to register for a free trial which you can do online at www.steelmarketupdate.com

10 / 14 / 2009 - Steel Market Update Buyers Sentiment Meter drops by 16.4 points

Wed, 14 Oct 2009 04:00:00 -0500

“Slow demand + higher prices = no buyers” (Midwest service center)

Steel Market Update survey respondents have taken a turn off the happy trail and jumped on the trail of tears based on this week’s market survey. The SMU Buyers Sentiment meter reading as measured by our every other week market survey is -44.4%. This is a drop of 16.4 points over the past two weeks as our prior meter reading was -28%.

The last time we measured a reading this low was the week of June 19, 2009 when we measured Buyers Sentiment at -45.5%. The lowest reading was recorded the week of March 9, 2009 at -85.4%. Since that time until recently Sentiment has been improving although not enough to get into positive numbers (optimistic sentiment levels).

The lowest possible reading is -100% (pessimistic) while the highest reading possible is +100% (optimistic) and a reading of 0% is considered to be a stable or fair sentiment reading. You can see our Buyers Sentiment meter on the home page of our website as well as our Market Momentum indicator (currently pointing down for prices trending lower) – www.steelmarketupdate.com

Last week SMU attended the Metalcon conference and the mood was subdued and most companies were forecasting little to no growth in the metal building industry during 2010. Those companies involved in larger commercial construction projects – office buildings, hotels, malls, etc. – are preparing for a long winter and a long 2010 with no growth. Automotive is projected to be slightly higher next year around 11-11.5 million units. Residential construction should grow albeit modestly. Pipe and tube should grow as long as oil and gas prices remain up.

The bottom line is the energy and enthusiasm seemed to have been sucked out of the market over the past few weeks.

Here is what our survey respondents are telling us:

A trading company made the following observation: “[business conditions are] Poor in comparison to historical data, however in my opinion this is the norm for the coming 6-8 months. If we do not experience the rise in the economy late winter/spring, we're screwed for another year.”

A construction related distribution company/wholesaler reported business conditions as being “poor” but their company was taking the current situation as an opportunity: “Our overall sales down approximately 20%. But our board has approved 2 new branches in the last 16 months. We are hoping to build market share.”

A construction related manufacturing company made the following observations: “Very busy July - mid September for Metal building products. Fairly busy same time frame for residential products. Business is now slowly declining (a month early for a typical year). Looks like another tough winter ahead.” This same company reported business conditions as "Fair" with a nagging feeling of "Poor".

An automotive stamping company had this to say about their business – which they deemed as “fair” – “Demand is up for the 4th quarter, some of this is seasonal but some is real increase from the OEM.”

While a small service center located in the Midwest reported, “it's really slowed up here in the last 2 weeks - demand is weak”

If you enjoy learning more about the status of the North American flat rolled steel market - be it Buyers Sentiment, pricing, trends or relevant news - you may want to consider registering for a free trial to our newsletter and all areas of our website. You can register on our website at www.steelmarketupdate.com.

Tue, 06 Oct 2009 04:00:00 -0500

Steel Demand Outlook – 2010 through 2012 – New Normal

The following article was submitted by Paul Lowrey, Managing Director of Steel Research Associates. Paul is a consultant to the steel industry working with steel mills, service centers, trading companies, end users and the financial community. SMU has found Paul to be extremely qualified and he has assisted SMU in answering our questions from time to time.

Paul and I have been having a dialogue over the past 9 months about “old and new normal” and he has supplied a historical framework and projections about the steel industry going out to 2012.

The Big Question

The big question on everyone's mind is: What's going to be the "new normal" for steel demand? Before providing an outlook, let's take a quick look at recent history and the current environment.

The Old Normal

For the ten years ended 2007, U.S. steel demand averaged about 125 million tons per year. Data for the individual years is shown in the table below.

Year	Total Shipments	Less Exports	Plus Imports	Apparent Demand
1998	102.4	5.5	34.7	131.6
1999	106.2	5.4	27.1	127.9
2000	109.0	6.5	29.5	132.0
2001	98.9	6.1	23.7	116.5
2002	100.0	6.0	23.9	117.9
2003	106.0	8.2	18.3	116.1
2004	111.4	7.9	28.4	131.9
2005	105.0	9.4	25.2	120.8
2006	109.5	9.7	36.0	135.8
2007	106.4	11.2	26.5	121.7
Average	105.5	7.6	27.3	125.2

Source: AISI

About 75% of steel demand ultimately comes from nonresidential construction, automobile production, and residential construction (including related durables like appliances, HVAC units, and water heaters). The following table summarizes the activity levels in these sectors from 1998 – 2007.

Sector	Annual Avg. 1998-07	Peak Year	Peak Quantity
Nonresidential construction (billion square feet)	1.6	2000	1.9
NAFTA auto build (million units)	16.0	2000	17.2
Residential construction (housing starts – million units)	1.7	2005	2.1

Sources: McGraw Hill, CSM, NAHB

Current Environment

In 2008, steel demand followed the old normal through the first three quarters. Then, it fell off a cliff in 4Q-08 as the manufacturing and construction sectors were devastated by the financial crisis. Full-year demand for 2008 was a respectable 110 million tons, but 2009 will be much lower. The changes to the underlying demand drivers for 2008 and 2009 are shown below.

	2008	2009F	2009F % Decline From
Sector	Quantity	Quantity	Average	Peak
Nonresidential	1.4	1.0	-37%	-47%
Auto	12.6	8.4	-47%	-51%
Residential	0.9	0.6	-65%	-71%

Sources: McGraw Hill, CSM, NAHB

The data for 2009 indicates a drop in steel demand of 40% - 50% from the old normal (nonresidential construction has the most impact and residential has the least impact). Accordingly, 2009 steel demand should range from 65 to 75 million tons. This will be the lowest year since 1982 when demand was 75.8 million tons. Prior to that, you have to go back to the late 1950's and early 1960's to find demand in the 65 to 75 million ton range.

The New Normal

What might the "new normal" look like? Let's take a look at the forecasts for the key demand drivers.

	2010F	2011F	2012F	Old Normal
Sector	Quantity	Quantity	Quantity	Average	Peak
Nonresidential	1.0	1.1	1.4	1.6	1.9
NAFTA auto build	9.9	11.9	13.6	16.0	17.2
Residential	0.7	1.0	1.2	1.7	2.1

Sources: McGraw Hill, CSM, NAHB

Without showing all the math, the implied steel demand would be:

•    2010F: 75 – 85 million tons
•    2011F: 80 – 90 million tons
•    2012F: 95 – 105 million tons

It's looking like three or more years before we see a 100 million ton steel market. Even then, the market would be 20% lower than the old normal. If this turns out to be true, look for some of the plant idlings to become permanent closures.

SMU Comment

Note: If anyone is interested in hiring a consultant within the steel industry and would like to learn more about Mr. Lowrey please feel free to contact me in my office – 800-432-3475.

9 / 25 / 2009 - Members of HARDI discuss the status of the HVAC business

Fri, 25 Sep 2009 04:00:00 -0500

HVAC Distributors - “Business Stinks”

Steel Market Update is a member of HARDI (Heating, Airconditioning, Refrigeration, Distributors International) and we participate in a conference call with a large number of the members who distribute galvanized sheet steel to the HVAC industry. The group has been an excellent barometer for both residential and commercial construction projects and the health of the construction economy.

The group immediately arrived at a unanimous consensus in this morning’s conference call, “business stinks”. It stinks in New Jersey, Kansas, Wisconsin, Washington, Texas, Indiana, Virginia and all across the United States and Canada according to the HARDI distributors.

Of biggest concern was the lack of new projects moving forward. One distributor pointed out HVAC (heating, ventilation and air conditioning) is a late trade on a construction project. The building – be it a house or a commercial building – has to have its foundation, walls and roof on before the mechanical contractors start working on the heating and cooling systems.

Residential construction may have well bottomed out – but the number of new starts and weather issues in the north – will mean a long cold winter for those mechanical contractors in this sector of the construction business. Meanwhile, commercial construction is grounded with few new starts due to over-building as well as a lack of funding for many of the projects which had been quoted and approved – but have not been built. This is not to say there is no business – it is limited and tough on an industry which has been booming for many years.

The amount of tonnage of galvanized steel being purchased by these distributors (who should not be confused with service centers who strictly stock and ship steel – HARDI members supply all kinds of materials and equipment to the HVAC mechanical contractors – including A/C units, heaters, furnace pipe and fittings and sheet steel) is in decline. One distributor noted his sheet steel tonnage – using a 12-week running average – was actually growing during the first two quarters 2009. His most recent 12-week moving average, as well as his 12-month rate of change, was down 20% with no hope for any recovery until some time next year.

A service center who belongs to HARDI and participates on the conference call reported their company position was to remain skeptical about over all steel demand and to keep their inventories tight. They reminded everyone the 4th Quarter is normally a slow quarter and their company’s memory of writing down (devaluing) inventory during the 4th Quarter 2008 and into the first 4-5 months 2009 has created a situation where they will not allow themselves to be placed again. They reported their intention is to “buy as needed” and they would not boost inventory but would rather pass on business than get caught with high-priced steel.

A number of the HARDI distributors reported inventory levels at, or below, 2.0 months supply – however, with slower sales these inventories could easily balloon to 3.0 months or more without making new purchases….

Steel Market Update

Steel Market Update is unique amongst its competitors as we are writen by experienced flat rolled sales and purchasing people. As the article above indicates we continue to participate in professional organizations and to communicate with buyers and sellers (and management) of steel related companies.

Even though we no longer are directly involved in the buying and selling of steel - we continue to be actively involved in understanding the market, market prices and the forces which impact steel related companies.

You are welcome to register online for a trial subscription.

9 / 20 / 2009 - Discussion of market momentum and how "collective will" can change direction

Sun, 20 Sep 2009 04:00:00 -0500

Flat Rolled Inventories & Shipments

In the just released Metal Service Center Institute data – flat rolled carbon sheet shipments increased from 1,512,300 short tons to 1,589,200 short tons which is an average of 75,700 tons per day. August was the first month this year where daily shipments averaged more than 72,000 short tons. Even so, when compared to August 2008, this year’s shipment level represented a decline of 31.5% and was 32,141 short tons per day less than the 2008 yearly average.

As expected by SMU carbon flat rolled inventories declined slightly – from 2,797,300 tons to 2,780,800 tons. At the new shipping level the days of inventory declined from 1.8 to 1.7 months supply. Flat rolled inventory levels are now down 55.8% compared to this time last year.

The lower inventory levels are believed to be the result of service centers chasing the mills to produce their late orders. As SMU reported earlier this week – both service centers and manufacturers are reporting mill orders as being up to a month late (8.3%) and at least two weeks late but less than one month was reported to be 55% of the 100+ companies which responded to our question.

Total Steel Products

For the industry total steel product shipments increased to 121,400 short tons per day or, 2,549,100 short tons for the month of August. The Shipping trend increased by a minimal 2% for the month of August at a time when seasonal construction business usual means a much stronger shipping month.

Total steel inventories dropped from 2.3 to 2.2 months based on the new shipping rates.

Canadian shipments totaled 415,500 tons of steel (all products) which is 18.8% fewer tons than the same month last year. The Canadian service centers shipped 398,500 tons in July. At the end of August, Canadian service centers held 955,600 tons which represents a 2.3 month supply at current shipment rates.

SMU Comment

The expectation is there will be some restocking but SMU does not expect any orders other than normal replacement business and orders could actually decline as we get into December lead times based on what our survey results have told us from earlier this week. (Source: MSCI)

9 / 18 / 2009 - Discussion of two recent media articles concerning the U.S. steel business

Fri, 18 Sep 2009 04:00:00 -0500

On August 31^st, Steel Market Update produced a Buyers Guide article entitled: “Buyers and Sellers Beware Information Clutter”. Over the past few days we have seen excellent examples of times to question the validity of the information before making buying or selling decisions.

From time to time Steel Market Update comes across an article or information which is “out of whack” with what our research is telling us. We had two examples over the past couple of working days and SMU did contact both authors to see if we could gather more information or, to check the sources for the article in question.

Last Friday, the American Metal Market published an article entitled “Obama asked to set trade precedent” where the author cited a source stating the Chinese had shipped 2.08 million tons of steel to the United States during the month of August. In reality, according to U.S. government import licensing data, the Chinese shipped a mere 30,000 metric tons (all products) into the U.S. during August 2009. In fact, the entire steel import number was slightly less than 900,000 metric tons.

I did speak via email with the AMM author of the article and he provided his source material to SMU for review. During our online dialogue we discovered an error was made during the editing process and the intention of the article was similar to an article written back on September 4^th by SMU – that being a need to watch Chinese export prices since they were falling and ultimately could impact the U.S. market either directly or by forcing prices down in the rest of the world.

The AMM meant to say the data is showing the Chinese have once again become net exporters of steel after spending a number of months on the sidelines (and actually importing product). The shipments, to date, are not coming to the U.S. market and SMU sources have informed us as late as last Friday that the Chinese prices still do not make sense on the West Coast, Gulf or East Coast U.S.A. at this time.

It is my understanding AMM issued a correction regarding the article on Tuesday.

Section 421 – a Side Note

The AMM article pointed out the eleven members of the U.S. Congress steel caucus were urging President Obama to affirm the recommendations by the International Trade Commission and place punitive duties on Chinese tires. Late on Friday the President did just that.

Many consider the action by President Obama to be a “game changer” for U.S. trade policy and have already elicited a protectionist response from the Chinese who are now going after U.S. poultry and auto exports to China.

More importantly will be what comes next since President Obama has now shown the willingness to use the section 421 powers to block imports from China. During the Steel Orbis conference held in San Diego earlier this summer – a number of manufacturers urged the steel community – both as manufacturers and end users – to utilize the Section 421 as a quick and easier way to approach the potential dumping of Chinese products. SMU expects a rash of Section 421 cases in the very near future.

Wall Street Journal

On Monday, the Wall Street Journal published an article which cited sources out of World Steel Dynamics as stating prices for hot rolled steel had declined by 8% since August. SMU did contact the author who described the purpose or “nugget” of the article being a warning of too much capacity is being brought back online and threatens prices.

In my opinion the article was poorly written as world export prices (Chinese prices) which have been higher than U.S. prices have declined over the past few weeks as SMU has reported. However, the inference of the article – not denied by the author – was U.S. prices were also affected and the latest increases announced by AK Steel and others were in question (“Whether those price increases will stick is unclear” – WSJ).

On Monday the Bloggers of the world were having a field day and by Tuesday the Wall Street Journal article had hit mainstream media around the world each predicting an end to the rise in steel prices – including here in the U.S. This is giving reason for buyers not to complete deals with the domestic steel mills or service centers.

World Steel Dynamics Latest Report

The WSJ was citing a World Steel Dynamics 72-page report recently published where they assert recent events have ended the “shortest shortage” in history (I didn’t realize we had a shortage to begin with – more like a controlled market here and speculation fueled by stimulus spending in China). The shortage being referenced was from June through August 2009. The Wall Street Journal used this report in their recent article about steel prices falling.

SMU China Source

SMU has been discussing the changing position of China for some time as one of our sources has been making it quite clear the situation of China as net importer would change and change very quickly which it has. China, in August, was a net exporter for the first time since March of this year.

Most buyers here in the U.S. are telling SMU the Chinese are making some lower offers than what was available previously but, they are still too high to conduct business. The political situation may weigh on steel offers for awhile – but, ultimately the over supply will have to go somewhere and it will affect prices. The question for foreign is “when” will it become a factor in the U.S. market – due to lead times it will be at least mid-First Quarter 2010 or later.

9 / 11 / 2009 - Information from one of our Asia sources regarding status of Chinese export offers

Fri, 11 Sep 2009 04:00:00 -0500

SMU sources in Asia continue to report falling prices in both the domestic and export markets. Over the Labor Day holiday Boasteel dropped their domestic hot rolled pricing by 6 percent. There have been a number of press releases and articles in news organizations like Reuters. The real story out of China is not their domestic market but what is going on with their export prices. Here are the most recent pricing and information SMU received from one of our Asian sources on Tuesday of this week:

John:

Prices are down to USD520/mt FOB ST. LSD level for RRQ quality HRC and 2.00mm and up
thickness. China is taking orders not only for EU, but also Korea and other S.E. Asian countries.

GI is at USD630-640/mt FOB ST. LDS level for 1.00mm and Z100/Z120 00gr/mm2/120gr/mm2) base zinc and CRC is slightly below the USD600/mt FOB ST. LSD level on 1.00mm base.

Domestic stocks are high, production reductions are coming back on line FAST (over capacity now), there is still NEW production coming on line, upgrades or older mills, older lines etc..., mills being strapped for cash to import raw materials, hence selling practically UNDER cost, and also the Government in China is considering reinstating the rebates on Steel products
which I doubt with transpire, but leaves a lot of question in the market and all of this is bringing prices down.

I see more price reductions in coming weeks out of China on ALL products John. Plus, I doubt the sustainability of the prices in the USA.

Hot Rolled at $520 metric ton = $472 per short ton. This price is down by $10 per metric ton since Thursday of last week (four days ago at the time of this writing).

RRQ = Re-Rolling Quality.

Cold Rolled at $600 metric ton = $544 per short ton (or a little less since the statement was slightly below $600 per metric ton)

GI = Galvanized at $630-$640 metric ton = $571-$580 per short ton.

1.00mm = .0397” & 2.00mm = .0787”

Z100/Z120 = approximately G30 to slightly below G40 (Z122 = G40).

For comparison purposes - .0397” X 48” G30 Galvanize out of USS = $38.90/cwt or $778 per short ton.

Freight is approximately $80 per metric ton ($73 per short ton) to West Coast and $90 per metric ton ($82 per short ton) to the Gulf.

9 / 7 / 2009 - Scrap article originally published in our newsletter - September 4, 2009

Mon, 07 Sep 2009 04:00:00 -0500

SMU spoke with several of our scrap sources this week and we are continuing to report the ferrous scrap market is getting busier – mostly from purchases by the domestic steel mills as the scrap markets in Turkey are down for Ramadan and China exports have slowed.

In one of my conversations with an executive for a large scrap concern in the eastern U.S. – he told me their business has been steadily getting busier over the last 5 months. “Each month, he told me, our tonnage sold increased by 10% over the previous month.”

Scrap dealers are reporting “all signs as being positive” for their industry. Steel mills are bringing back capacity and they need to build scrap inventories as even a fully integrated mill uses scrap to charge the furnace.

As SMU has reported on previous occasions there are a number of furnaces coming back to life – U.S. Steel, Granite City has 2 furnaces, U.S. Steel, Ecorse has 1, U.S. Steel, Hamilton (Canada) is bringing up one furnace and ArcelorMittal is bringing up 1 furnace at Indiana Harbor and 1 furnace at Cleveland plus, we need not forget AK Steel has two furnaces running instead of just one as Ashland was not allowed to be idled by an arbitrator. According to SMU calculations (using mill and AIST data) there is an additional 29,350 short tons per day of melt capacity coming back online. These furnaces coupled with higher usage at the mini-mill furnaces are driving domestic demand for material higher – and scrap prices in their wake.

Scrap dealers are talking of potential scrap shortages in the months to come – especially if real demand for steel increases. Collections of scrap are down and turnings and heavy melt (HMS) – which come out of manufacturing companies – are in short supply due to lower manufacturing base volumes. At the same time shredders have eaten up HMS stocks in order to keep the equipment running and the flow of material is not as strong as it was last year when scrap dealers were offering a larger financial incentive for new scrap.

Scrap dealers are reporting the scrap shortages are not just in the United States and this could make for another interesting year ahead….

Scrap prices in the Eastern and Midwest portions of the United States were reported as follows earlier this week:

Shredded Scrap = $290-$300 per long ton delivered.

Structural Scrap = $280 per long ton delivered.

Heavy Melt (HMS) = $270 per long ton delivered.

As of this writing (Thursday, September 3rd) SMU was not aware of any firm pricing yet on prime grades (#1 Busheling and Prime Bundles) as the dealers and mills have not yet come to conclusion on pricing. This is expected to occur shortly after our Labor Day Weekend holiday. (prime grade pricing were made available and will be published in our newsletter on Tuesday evening, September 8th).

By the way, an interesting tidbit for those of you interested in “cash for clunkers” and what affect the clunkers will have on the scrap market. Scrap dealers are telling SMU it will take months before the clunkers work their way through the scrap yards where they will first have sellable parts removed (such as the catalytic converter). The expectation is no more than 100,000 of the clunkers per month will be moved to the shredders – which is but a drop in the bucket when compared to the 13-14 million cars junked each year.

Another interesting tidbit – one shredding operation told me they pay $200 per short ton for scrap vehicles – whether in pieces, flattened or whole cars.

8 / 31 / 2009 - Nucor Steel has changed the name of its trading arm from Novosteel to Nucor Trading

Mon, 31 Aug 2009 04:00:00 -0500

Novosteel becomes Nucor Trading

The much anticipated and expected transition has just been announced as Nucor Steel has brought their Novosteel trading arm under the official Nucor umbrella and has renamed the company Nucor Trading.

The Novosteel “group” became part of Nucor Corporation back in March 2007 as part of the purchase of the Harris Group out of Canada. Novosteel SA, with its headquarters in Neuchatel, Switzerland, and run by Michael Setterdahl along with the Canadian and U.S. arms of Novosteel have been transitioning since March 2007 and during the past few months the transition has accelerated.

Nucor Trading and their subsidiaries around the world (Canada, USA & Dubai) is responsible for taking the lead to bring Nucor into new markets and new regions around the world.

As Mr. Setterdahl pointed out in a letter to the marketplace, “The world steel industry is (and has been) experiencing many transformations, however steel factories need to market their products in a global environment and steel consumers need to be aware of the global impact of their work. Steel and its’ downstream and upstream relatives are being bought and sold each day, being shipped each day no matter if the market is “hot” or “cold”. Our principal goal is to service our customers with product flow from Nucor production facilities, however we will also continue to source with other producers because it is part of our service to our customers. Our long term agents in principal markets are un-changed.”

Personal Disclaimer

I have had personal involvement with Novosteel SA and USA prior to taking my publication – this publication – to the market on a subscription basis. I acted as an agent on behalf of Novosteel for a number of years selling galvanized, cold rolled and prepainted galvanized and Galvalume into the U.S. markets from India, China and other countries around the world. I discontinued my business relationship with Novosteel during the summer 2008.

Mr. Setterdahl and others associated with the former Novosteel – Nucor Trading – have my upmost respect as professionals in the trading business. My understanding is the existing phone numbers and addresses will remain the same but the email and other items previously referenced by the Novosteel name will change to Nucor Trading.

Nucor Trading has offices in Switzerland, Canada, USA and Dubai.

8 / 24 / 2009 - Comments made during HVAC wholesaler steel buyers conference call

Mon, 24 Aug 2009 04:00:00 -0500

HVAC Industry Worried about their Future

SMU belongs to HARDI (Heating, Airconditioning, Refrigeration, Distributors International) and we participate in a monthly steel conference call with HVAC (heating, ventilation & air conditioning) wholesalers across the United States and Canada. Due to our travel schedule on Tuesday I missed this month’s call – however, the HARDI folks were nice enough to provide details of their call and have given me permission to share some of their thoughts and concerns with my readers:

The consensus for our immediate future is not good. Sales reports were dismal, from all regions. Contractor demand is soft and even more disturbing is the lack of future projects in the bid rooms. Reports came in on the call that many union halls are full of workers ‘sitting on the bench’ waiting for work. It looks to be a tough fall and harder winter for both sales and A/R collections.

But the steel mills are still pushing up prices. A comment was that ‘they are not demand driven but supply driven’. Many mill buyers reported that they are still waiting for orders to be shipped from their June orders. Even service centers can’t easily get what they want, when they want it. As material becomes available, an informal allocation is making sure that customers with an on-going relationship are being taken care of.

There was speculation that some mills might be (prematurely) closing their order books to control supply. Thus in some cases, the October order book is announced to be sold out or nearly sold out. Also it was noted that if the coating mills can’t get the substrate to coat, then their lead time goes out and their ‘order book’ gets closed early.

Everyone seems to be waiting for the next market adjustment when prices will again retreat. No one wants to build inventory in this environment, adding more strain to the supply chain. We all can remember (actually who can forget) the horrendous markdowns we all took last year as the material in our inventory dropped in value.

Ultimately, it is possible that Wholesale Distribution for our industry may just not order much for October/November due to currently late shipments and dismal expected demand.

There appears to be no foreign flowing in as the pricing is the same as domestic right now and by the time foreign material gets here we all expect that the then current pricing will be lower than right now. The only ‘deals’ for foreign steel are orders previously canceled by someone else. Other than that, nothing is worthwhile.

With our overall market (pie) shrinking, we are all trying to get bigger slices. No one wins. There does not seem to be any ‘thinning of the herd’ of sellers yet. There were some reports of HVAC equipment people getting out of sheets (and others getting in looking for ‘additional business’) but all and all not much significant change. Also noted was that some automotive steel suppliers were dipping into the HVAC marketplace.

(Notes from HARDI conference call held Tuesday, August 18, 2009 and reprinted with permission)

As you can imagine, HVAC wholesalers directly supply the vast majority of both residential and commercial construction across the United States and Canada. The concern of this organization (HARDI) and its membership regarding the future of the construction market leads one to believe real demand for flat rolled steel within the construction industry will be shrinking in the near term (late 2009 and 2010) with not much hope for growth until late 2010 and beyond.

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8 / 5 / 2009 - Steel Market Update has made it past its first "official" birthday

Wed, 05 Aug 2009 04:00:00 -0500

Congratulations on a terrific first year! The information you and your team provide is a true asset to the entire metals industry. Good luck next year and thanks.

Craig Sauer
Viking Materials
Mpls.

For those of you who have recently become members (or trial subscribers) of Steel Market Update – we are celebrating our “official” one year anniversary this month. It was in August 2008 when we completed the transition from “sales tool” for my mill and trading customers to a full fledged newsletter dedicated to the flat rolled steel industry. Based on the comments SMU receives on a daily basis from steel buyers, sellers, management and those associated with the industry as well as the financial community – we have performed well over the past 12 months.

I am pleased to see, as we go through the very early stages of our renewal process that our customers are not only staying with us – but, a number are expanding their memberships to include others within their organization as well as sister plants. One of our goals has always been to make our product affordable – and to encourage companies to share our newsletter (and website) within their sales, purchasing and management areas. We try to speak to the steel community and to the concerns, challenges and opportunities which exist within the steel community.

We have made it through the first year. We made promises to get better (and to continue to improve) by listening to our members and the steel community as a whole. SMU promised a website for our members – it took some time and a significant (ongoing) investment but we finally delivered. Now our goal is to grow the content and the value of our product.
Over the next 12 months Steel Market Update wants to continue to grow both the size and scope of our company as well as our customer base. The best sales people I could ever hope for are you, our readers – our members. Please refer our product to your friends in the business (competitors, suppliers and office cohorts) – and to anyone who you think my obtain value from our services.

While meeting with management of Steel Orbis last week we discussed the value of information and the need by every company to stay informed – not only about the business and suppliers in an isolated geographical area but, around the world. The steel industry is truly becoming a global community and what happens in China, Brazil, Russia, Europe and elsewhere will affect us here in North America.

I will be traveling to Maine this weekend to spend time with my family – which means I get to look at the old tattered shoes my kids will be wearing as they hike in the woods or walk on the beach. Many years ago when my children were mere toddlers a former steel buyer used to tell me as he gave me his purchase order, “Go buy your kids new shoes.” He always said it with a twinkle in his eye because he understood we do what we do for our families.

So, from my family I want to say a sincere thank you for an exciting past twelve months and I am looking forward to another year with you (and your friends). Thank you for your business as it is truly appreciated.

If you are new to Steel Market Update - having perhaps stumbled upon our website or came to visit after a suggestion from someone who was already aware of our existence - welcome. I highly recommend you sign up for a free trial - just click on my face and fill out the registration form. We keep all of your information in house and do not share with any other marketing company. Signing up for a free trial also gets you access to the private areas of our site - Steel News and Steel Prices.

7 / 29 / 2009 - New price momentum position

Wed, 29 Jul 2009 04:00:00 -0500

I’m Wrong – I’m Not Wrong - Price Momentum Adjustments

Steel Market Update (SMU) is quite proud of the number of survey responders we have and the wide variety of industries they cover. We feel our survey helps keep us (as in me) grounded in reality. With my background as a steel sales person at the service center, trading company and mill level – I can get a little “involved” in how I see the market flowing at any one point in time. I have never been one to be at a loss for an opinion.

However, over and over again our survey has proven to be a better indicator of reality. This was true back in January when it appeared the domestic mills had an opportunity to gain some headway (and they did for about one week) only to fall apart as momentum was lost and our Buyers Sentiment indicated a strong negative sentiment and our Pricing Momentum was against the domestic steel mills gaining any ground in regards to pricing.

A week ago, SMU changed our Price Momentum indicator from “Higher” to “Neutral” – with Neutral meaning prices would either remain stable or were in transition. Based on the results from this week’s market survey I am changing my position – slightly.

I understand the domestic steel mills tend to look at the market as one single entity and prices over the past few years seem to have gotten into the habit of walking in lock step no matter the product. However, the reality of the market is certain products are currently in more demand than others. With the push by automotive, the restocking needed at the service center level and seasonal needs in the construction and agricultural industries – it is obvious Coated Products – Galvanized and Galvalume – are taking center stage and have the extended lead times.

Other products – like hot rolled – although their demand may have improved slightly, lead times continue to be short and price deals can be negotiated.

What One Corporate Buyer has to Say

Over the past few days I have been trading emails with the VP of Purchasing for a large multi-facility service center. This individual has a perspective which I thought might be of value to both my mill and non-mill readers. Here goes:

“My current perspective is that the demand increase that has materialized (I think 10-12% flat rolled since April/May) originated, and is most pronounced still, in Coated products. Cold rolled seems to have enjoyed increased demand too, but not to the degree of coated. HR appears to be a minor beneficiary of demand, but is being carried along in the pricing wake of the other products. Regarding the bullishness of mills on a product line basis, I’m afraid I don’t see the sophistication of merchandising efforts for the mills to understand the opportunity to change the rules with regards to “spreads” (HR to CR, CR to Coated, etc.). So, what I see are mills bullish in general, and not really recognizing that OEM HR (and plate) consuming markets are not improving, but that there is a great supply/demand unbalance for Coated. From a supply/demand perspective, I see HR as overvalued for August, but CR & Coated well under valued. This situation seems that it will carry through September, and that certainly Coated and CR will hold up through October (these orders are already being placed).

New Price Momentum Position

SMU has adjusted our Price Momentum indicator on our website back to “Higher” which is symbolized by an arrow pointing up on the website home page. Our market survey indicates a division within the respondents as to the longer term potential of higher prices – only 29% of the companies who responded believe prices will be higher in 4th Quarter than they are for the month of September. At the same time approximately 37% believe prices will be lower and the balance believes they will remain at the September price level.

SMU new position is as follows:

Hot Rolled – Price Momentum is Neutral over the next 30-60 days. As our purchasing manager suggests in the comments above – HR is fairly priced in August and with further increases on the books for September which we have already indicated in our HR range (see story below) we believe prices should stabilize going into 4th Quarter.

Cold Rolled – Price Momentum is Neutral over the next 30-60 days. There may be a little more strength in the CR market than HR but it is not as strong as Coated products and our belief is for stable prices in 4th Quarter.

Galvanized – Price Momentum is for pricing to trend Higher over the next 30-60 days. SMU does believe once the automotive supply chain has refilled their coffers there will be a slow down in demand on galvanized products. However, we have not yet reached that point and prices should continue to escalate through October.

Galvalume – Price Momentum is for pricing to trend Higher over the short term – next 30-60 days or until the supply chain is replenished and we get through normal seasonal demands for agricultural and roofing. Like galvanized SMU expects demand levels for Galvalume to taper off come November at which time we expect the momentum to change.

The domestic mills are in the cat bird’s seat as foreign steel is virtually unavailable at price levels attractive to offset the push for higher prices by the domestic steel mills. The second item working in the industries favor is the inability of a number of the mills to deliver product on time thus exacerbating inventory holes. The mills will catch up….

7 / 24 / 2009 - Reasons why Steel Market Update believes prices could trend sideways, up or down over the next 30-60 days

Fri, 24 Jul 2009 04:00:00 -0500

SMU Price Momentum Shifts to “Neutral” from “Higher”

Based on conversations with buyers and sellers of steel across the United Steel Market Update has decided to adjust our SMU Price Momentum from “higher” which is designated on our website with a green arrow pointing up – to “neutral” which has a two-way blue arrow pointing sideways. A neutral indicates a potential shift or transition may occur in the direction of pricing within the next 30-60 days.

Reasons for Change

Commercial Construction continues to decline and will get weaker in the months ahead. Commercial construction is responsible for approximately 40% of the flat rolled steel market.

Residential Construction has bottomed out – but is a shadow of its former self and will not be a factor during the remainder 2009.

Automotive – 1st Half Build was down 50% during the first six months 2009 compared to the same period last year. NAFTA production was 3,561,621 units (car, light truck and heavy truck) through the end of June 2009 while the first six months of June production was 7,125,996 units. The second half of the year is projected to be up 30%-40% according to SMU sources – however, not all brands are being treated the same and trucks will not increase as much as cars. Even with an increase of 40% across the board production will still be 30% lower than it was last year.

Automotive Supply Chain – As Chrysler and General Motors struggled early in 2009 and it became obvious they would need to file for bankruptcy protection – their supply chain ran their inventories down as low as possible to protect themselves. In early June Chrysler notified their suppliers they were coming back online and by the end of June GM let their suppliers know what was needed to re-fill their pipeline. At the same time Honda, Toyota, Nissan (foreign transplants) increased production on their American made light vehicles in order to collect some gains out of the two struggling auto companies. The result has been this recent push in lead times – especially out of U.S. Steel, ArcelorMittal and AK Steel – the other non-automotive mills have not been pushed as hard by their markets. This is why you see galvanized available in early September by all but the automotive mills. As one large service center supplier told me earlier on Thursday, “Right now the automotive mills have taxed their available capacity and it will take the next 3 months – or about October/November to get the system back into balance.” Once back into balance the supply/demand “bubble” may burst when it comes to pricing.

The end of Service Center Restocking – The good news (and bad news) for the domestic steel industry is it appears most, if not all, service centers have learned through last year’s baptism by fire – not to speculate with steel inventory. Over and over again, SMU hears from service centers they will not build inventory past the 2.0 goal set by most companies and would prefer to run out of steel vs. having extra on the floor and risk it being devalued later this year. In my opinion this is healthy for the industry in the long run but, the demand is not there out of the service centers to substantially increase their orders in the 4th Quarter 2009.

Supply Coming Back Online – USS has brought back online a furnace at Granite City and one at Fairfield – and who knows what is going to happen with the Stelco situation they have in Canada. ArcelorMittal has brought back a furnace at Indiana Harbor East. It looks like AK Steel will run two mills for a period of time having recently lost an arbitration ruling regarding their USW contract with Ashland. All of this is new capacity back into the mix plus whatever the mini-mills choose to add. Bringing back capacity going into 4th Quarter leaves some with questions as to the laws of supply and demand.

Scrap Prices – always a “wild card” – SMU sources are advising us scrap prices are weakening slightly ($5-$15 per long ton) from their peak earlier this month. A jump in scrap prices – in either direction – can impact the direction of steel prices – especially out of the mini-mills.

Demand, demand, demand – other than market pockets –such as the Agricultural related markets – there does not appear to be excessive or growing demand. Traditionally 4th and 1st Quarters are the slowest time of the year for construction related projects – this years weather in the northern sections of the country (rain and cold in Northeast for example) has impacted what projects were available. State government budgets are being squeezed and the stimulus package impact has been minimal so far for the flat rolled steel sector.

SMU is not projecting a wholesale crash in prices – we may see prices actually stabilize for a period of time. Maybe now is a good time for one of the mills to suggest prices firm for a couple of months or perhaps longer in order to hold on to their gains?
SMU evaluates Price Momentum on a daily basis. Normally, momentum is not something which changes quickly or radically – but we threw out “normal” about 18 months ago and haven’t looked back since….

Items which can change our Price Momentum indicator

Foreign Steel – will there be more foreign steel offered for sale and at prices and lead times which are deemed “competitive” and workable in the U.S. (and Canadian) markets or, will prices continue to go higher giving the domestic mills room to go for higher prices? Watch – China, Taiwan, Korea, India, Venezuela and Brazil.

Changes in the demand/supply dynamics which currently exist in the market (mill outage, new immediate stimulus package, etc.).

A move by one of the domestic mills to capture market share, protect market share which is not under challenge or the need to keep a mill running and not having an option to shut it down (the AK Steel Ashland situation concerns me for the transition to lower prices in the future if they can’t balance supply with demand).

Lead Times - we have extended lead times at the automotive related mills - USS, ArcelorMittal, Severstal (Dearborn). We need to watch the lead times at the mills whose main customers are service centers and construction related industries. Currently, the mini-mills are into September (some early some mid), the conversion mills are into September (mid in most cases), and the integrated mills which are construction related are in late August to mid September depending on product.

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7 / 18 / 2009 - A review of where prices were the first week of January 2009 to today

Sat, 18 Jul 2009 04:00:00 -0500

I thought it would be interesting to take a look back to the first week of January of this year and see where prices were at that time and then compare where we are now - a little more than 6 months later. The following article was originally published by Steel Market Update on January 5, 2009:

SMU January 5, 2009: I received three revisions from three indexes plus I continue to do my own research regarding mill pricing for HR, CR and Galvanized coils.

First the newest index numbers:

Hot rolled coil – Platts Steel Markets Daily has revised their midpoint pricing by +$15 per ton ($.75/cwt) to $525 per ton ($26.25/cwt). SteelBenchmarker reported their hot rolled pricing earlier this week at $528 per ton ($26.40/cwt). The CRU Shadow index came out on Wednesday of this week with a new HR price point at $529 per ton ($26.45/cwt).

Steel Market Update earlier this week had our average (based on this week’s survey) between $515-$520 per ton – after speaking with a number of buyers on Thursday I would like to expand our margin of error to $515-$525 as a number of markets are collecting $520 from some of the larger customers. My expectation, based on our survey results coupled with the continuous dialogue I have with steel buyers is for HR pricing to be $515-$540 per ton (as an average) through February and into early March. I would consider this “stable” to slightly improving (slightly higher) pricing over the next 60 days.

Cold Rolled coil – Platts CR midpoint pricing increased $10 per ton to $625 per ton ($31.25/cwt). SteelBenchmarker reported CR at $623 per ton ($31.15/cwt) and CRU at $618 per ton ($30.90/cwt).

Steel Market Update came out earlier this week with our average pricing for CR at $605-$615 per ton. I mentioned at that time there are a wide variety of price points on CR – much more so than HR.

Galvanized coil – Platts, CRU Shadow report and SteelBenchmarker do not follow galvanized prices – probably because they are harder to pin down. In this week’s Steel Market Update Survey the largest percentage of respondents reported pricing which would equate to a $29.00/cwt to $30.00/cwt base price + new extras (48.1% of the respondents fit into this range). Another 26% of the respondents fell into the $31.00-$32.00/cwt base price range - with the balance being scattered about a little higher than a $32.00/cwt base.

Based on the Survey results coupled with conversations with both mills and customers it appears the average “base” price is currently $30.00/cwt-$32.00/cwt. I am seeing a small number of base prices above this out of USS and ArcelorMittal but they have much fewer “spot” buyers than the rest of the coated market.

To compare this pricing with The Steel Index, which I reported on in my last issue previous to this one, we see .060” X 48” G90 CS/B large coils galvanized at $32.00-$34.00/cwt ($640-$680 per ton). The Steel Index for this past week is $721 per ton ($36.05/cwt).

Steel Market Update expects galvanized base prices to “roll” from January into February. The earliest we could see a “bump” in pricing would be March – but, only if we get an extended rally out of the commercial construction market – and it is too early to tell if the activity over the first 7-10 days of January will continue through the balance of the month. Most wholesalers do not believe it will.

July 18, 2009

The very last statement in the January 5, 2009 article was a reference to the HVAC wholesalers who belong to HARDI (Heating, AirConditioning, Refrigeration, Distributors International) - an organization SMU has been a member for a number of years going back to my Winner Steel days. The wholesalers had already been impacted in residential construction going back to 2007 and the feeling was commercial construction would be slowing during 2009 thus impacting their business further.

What happened to pricing since the 5th of January? Our SMU price index had HR prices peaking at the end of January when our spread rose to $520-$530 per ton with an average of $525 per ton. During the month of February the average slipped to $500 per ton by the end of the month. As March progressed the domestic mills managed to lose another $40 per ton and HR ended the month with an average of $460 per ton. April ended at $415 per ton and May was the first month we broke the $400 per ton barrier as our average reached $390 per ton by the end of the month.

In early June, when AK Steel began the push to stop the erosion of prices, our SMU range on HR was $360-$400 per ton (average $380). Prices reversed direction and began heading higher - leading SMU to quote one of my trading company friends who once told me, "In the steel business there is no stability. Either prices or going lower or they are heading higher."

This past week - Steel Market Update pegged our range for HR at $430-$510 per ton with an average of $470 per ton. Not quite back to the early January levels - but getting closer. SMU projects the lower end of the range will move closer to $500 per ton very quickly as the special deals dry up and the upper end of the range will bump a little higher as well.

Price momentum continues to favor the domestic steel mills. At the same time there is little to no foreign steel being offered into the U.S. market. So, the only thing the domestic mills have to fear are each other.

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7 / 15 / 2009 - Results of the SMU market survey and our measurement regarding Buyers Sentiment

Wed, 15 Jul 2009 04:00:00 -0500

Slowly, very slowly – the Steel Market Update buyers and sellers of flat rolled steel are working through whatever issues are negatively impacting their company – and thus their Sentiment about today and their future.

This week’s SMU Buyers Sentiment Meter reading is -35.7% which is an improvement of 6.5% compared to the -42.2% recorded two weeks ago. This is the most positive reading SMU has reported since we started measuring sentiment in November 2008.

Our worst reading was recorded the week of March 9th at -85.4%. So, if we want to look at things through rose colored glasses the Sentiment reading has improved by 49.7 points.

A manufacturing company reported to SMU during the survey process, "We are seeing some hedge buying to beat price increases. The bad news is that most of this increased volume is from existing projects so expect we will see a lull in demand in the next 30 days."

A steel distributor/wholesaler tied to the construction market made a similar statement, "The mill price increase announcements have generated a decent amount of business for both June and July. Unfortunately, we feel it will be at the expense of future business."

Those directly involved in the buying and selling of steel are still struggling with the "new normal" which can be anywhere from 10% to 50% below what was originally forecasted for business conditions at this time of year. SMU believes the combination of a lack of understanding and the inability to forecast future needs is what continues to drive the negative Buyer Sentiment readings.

Any reading below -10% represents a negative Buyers Sentiment about their company’s current position and lack of growth compared to company expectations. Readings above +10% would indicate optimistic Buyers Sentiment.

Future Buyers Sentiment Reading

SMU also measures Future Buyers Sentiment which this week broke through into positive territory at +4.7%. This represents an improvement of 11.6 points from the previously recorded -6.9% two weeks ago. Four weeks ago our Future Sentiment reading was +9.7% and was the only other time since we started recording measurements that the Futures reading was in positive territory.

7 / 1 / 2009 - Latest Buyers Sentiment and Future Sentiment readings and explanation

Wed, 01 Jul 2009 04:00:00 -0500

Buyers Sentiment at -42.2%

Since November 2008, Steel Market Update has measured what we call “Buyers Sentiment” or the attitudes of both buyers and sellers of steel about their company’s position in the current economic environment as well as what their attitudes are about their company’s position looking into the future 3-6 months. Since November, our readings have been in the negative ranging from -85.4% on March 9, 2009 to this week’s -42.2%. This week’s -44.2% reading is a slight improvement from the -44.5% measured on June 17th.

Any reading below -10% represents a negative Buyers Sentiment about their company’s current position and the lack of growth compared to expectations.

Steel Buyers and Sellers Struggle with “Normal”

Many in the steel industry are struggling with “normal” or perhaps more accurately would be they are struggling with “new normal.” One of the key questions in the SMU market survey is one where we ask those taking our survey how they feel regarding business conditions as they exist today. In the multiple choice answers we ask how things compare to “normal” and many who respond to the question have a problem with the word and interpretation of “normal.”

I have intentionally been leaving the word in the answers waiting for the steel community to come to terms with what is now “normal” in their business. Is normal a comparison with past sales or tonnage volumes? Is so, what year is “normal” surely 2008 doesn’t fit into a normal steel year – does 2007, 2006…or do we have a “new normal” which is in the process of being defined?

Conversation with a Manufacturing Company

I discussed this exact issue with a manufacturing company manager over the past couple of days since the survey first came out. The discussion started when the manager, who I have known for many years (although they were not a buying account of mine when I was selling steel), left a comment in this section of the survey questioning my use of the word normal.

I responded back to this individual much the same way as I did above. I understand part of the issue is to first deal with what is now normal and then base your response from there.

The manufacturing manager came back to me with the following:

I’m in the same camp as those that don’t know what the new normal might be, so judging normal is a bit difficult under the circumstances.

I suppose I can put it this way….

Our business is up for each month of this year……but each month of this year is well down from the same month in the previous year….but each month of this year is also in apparent tandem with last years business cycle…….in other words, we are up because of the normal building cycle, not because business is improving. If business were actually improving we would be seeing the % gap shrinking between the same month last year and this year…….that is not happening…….it’s just about maintaining.

So it begs the question……..what is normal; and how do you judge if business is improving or declining from normal levels?

This dynamic by itself is what makes the survey question difficult to answer.

To which I replied: “Since I am trying to gauge sentiment with this question – are you happy about business conditions in your company right now?” To which the manufacturer responded, “In a word, no….”

I then went on to ask: “Is the following statement true or false – since you are not happy with current market conditions – then you (and other management at your company) at not prone to hire more people, spend money on speculative inventory, expand your building, etc?”

The manufacturer responded, “Correct on all accounts. We are still right sizing our workforce and are still not complete with the ultimate re-organization. We are in austerity mode regarding spending. We are only locking up inventory that we have customer pricing commitments to keep."

Many other manufacturers, service centers and even steel mills (based on Dan DiMicco comments last week in New York) are still confused about what is normal. This is why 72.7% of those surveyed this week told SMU they are not able to forecast their future steel needs. You can’t forecast needs if you don’t know what to expect for future business – and, if you are unable to determine what the future holds sentiment or attitudes about existing business conditions become negative.

Sentiment has been improving since March as some companies recognize the “green shoots” in their basket of customers. However, it appears the majority of the steel industry is still weeding out dead grass and parched earth which threaten what few green shoots they have to work with. Thus, SMU Buyers Sentiment continues to be negative as both buyers and sellers of steel products try to determine how their company can prosper in the existing steel environment.

Future Buyers Sentiment

Two weeks ago our Future Buyers Sentiment was measured at +9.7%. Our latest survey indicates sentiment about the future of the steel business and people’s feelings about their company’s ability to succeed 3-6 months out has taken a hit and dropped to -6.9%. My opinion is the decline in sentiment is most likely tied to the two price increases and the size of the second price increase which is creating new pressures on future business. What may be good for the steel mills is not necessarily good for manufacturing companies.

One of the survey questions asked was how companies are dealing with the second round of price increases announced the week of June 15th? Those who support higher prices came to 38.8%, those who are dedicated to fighting the increases equaled 29.1%, the number of contract customers totaled 6.8%; and those who were able to negotiate a lower price than what was announced totaled 22.3% and finally those who were in some way “protected” from taking the full increase were 2.9% of the total. Truly a mixed bag of results and emotions which go along with these results.

At the same time, as we mentioned above, 68.6% of the companies responding to this week’s survey believe the domestic mills will increase prices again for September. Not the best of circumstances for those companies who are trying to get out of a hole and grow their business.

Mon, 22 Jun 2009 04:00:00 -0500

Overview of Current Steel Industry

Notes from my Conference Call with Bank of America/Merrill Lynch

I did a conference call for Kuni Chen of Bank of America Securities/Merrill Lynch this past Friday. I thought I would share some of my notes with you as it gives a bit of an overview of the industry and events over the past few months. This may help put some things into perspective as we roll up our sleeves and deal with the second half 2009.

Background

My last conference call hosted by Mr. Chen was on March 13th of this year. At the time of our last conference call SMU had a hot rolled pricing range of $440-$520 per ton with an index average of $480 per ton. At that time in March – hot rolled prices had declined from their peak of $1100 per ton achieved in the summer of 2008.

Since March hot rolled prices have continued to decline and, according to our data, the bottom in hot rolled pricing was reached earlier this month – in the first week of June - with a range of $360-$400 per ton and an index average of $380 per ton – this is essentially a 20% decline over a 13-week period from March 13th to the first week of June….

First Round of Price Increases – June 1st

If you are at all interested or invested in the domestic steel industry you are already aware of the price increase announcements by the domestic steel mills which began that very first week in June. As I stated in one of my articles at the time – AK Steel set the pins up and the rest of the mills proceeded to knock them down. Price increase announcements varied from the AK Steel $20 per ton base price increase to ArcelorMittal putting a specific price out there of $410 per ton on Hot Rolled which was an increases of $30 over the SMU indexed average at the time - it also represented a $50 per ton increase to those who were at the lower end of the pricing range.

I won’t go into a lot of detail about the first round of price increases other than to say the marketplace has accepted them.

Second Round of Price Increases – June 15th

On Monday of this week ArcelorMittal made a second announcement which I had already prepared my readers to expect. Although, the increases announced were a bit more aggressive than anticipated. I had anticipated the next round of increases would be approximately $50 per ton and Mittal did come out with $50 per ton on hot rolled – but they moved $70 per ton on cold rolled and $90 per ton on coated products – galvanized and Galvalume.

Essentially, this took their numbers on Hot Rolled from $380 to $460 in a two-week time period. I look at it another way – and the domestic mills probably look at it as I do – in reality all they did was take prices back to essentially where they were in March.

On Wednesday evening Nucor made their price announcement which is on paper was less than Mittal’s. Yesterday (Thursday of last week) AK Steel published their pricing announcement which based on my calculations will put them on par with Nucor and Mittal on HR and slightly below Mittal on Galvanized.

I have been through this process of sifting through competing price announcements and it will take a little bit of time to figure out what pricing will stick – or if the market is strong enough to have tiered pricing depending on the mill and product. Each individual mill may be having a difficult time reconciling exactly where their order book is and where their pricing should be. On Friday Nucor, Berkley closed their coated order book until further notice. A sign of the resurgence of strength in coated products.

However, it is important to note our market survey results clearly indicate both service centers and end users are psychologically prepared to pay higher prices – and for that matter they are anticipating they will be paying higher prices over the next 3-6 month time period.

Keys SMU is Watching

There are some key questions or issues which will determine how far prices can move. Here are some of the items I – and this newsletter – are following:

•The status of inventory destocking – and I have broken it out into two segments – service centers and manufacturers.

•The amount of actual steel demand in the “new normal” economy which we find ourselves.

•The laws of supply and demand – at what point will the mills restart too much capacity for our “new normal” economy.

•Scrap prices – will scrap prices increase, decrease or stay the same and what affect do they have on steel prices?

•Imports – what is the status of imports now and what does the future hold?

•Prices – can the domestic mills collect more increases in the spot market than what they have already announced?

Status of Destocking – Service Centers:

Much has been made about the “destocking” of service center inventories. According to MSCI data (which is backed up by our survey results) it is true the service centers in the flat rolled market have taken their inventories down to 2.5 months of supply based on their current shipping rates. The research I have done through my market surveys and direct contacts with service centers across the country is showing me the distribution network is strained – by that I mean the service centers are getting to a point where they have “holes” in their inventory and those holes are getting harder to fill – especially as mill lead times start to extend.

Last week SMU conducted a market survey of both service centers and manufacturing companies. Our survey results indicate the vast majority of service centers are no longer destocking and found that 20% of the service centers are now in a re-stocking or buying mode. Two weeks ago our survey found only 3.9% of the service centers were in a re-stocking mode. This is a significant move in a short period of time.

Another point I need to make here is you need to look at the anemic daily shipping rates of 62,700 tons per day of flat rolled products - and then ask yourself what would their inventory levels look like if shipments improved by just 10%? The answer is 2.3 months. If service center shipments returned to the levels seen last November – or 82,200 tons per day – there would be less than 2.0 months of inventory on the service center floors. That is what has some of the service centers nervous and is making the domestic steel mills get aggressive.

By the way – the daily shipment rate last May was 123,400 tons per day. At 82,200 tons per day the service center shipments would be 34% lower than last years levels.

Status of Destocking End Users/Manufacturers:

The majority of manufacturers in our survey reported they were maintaining their current inventory levels – only 5% reported they were building inventory – and 31.7% continue to report they are reducing their inventory levels.

I spoke to a number of manufacturers over the past 24 hours in various industries and found with the exception of automotive (which I will speak to momentarily) – most manufacturing operations are not reporting spikes in demand – they are reporting modest increases in demand compared to what they had seen earlier this year.

Automotive has been a wild card so far this year. I listened to a CSM conference call on Wednesday and I spoke with one of the automotive service center suppliers this morning – with the combination of lower sales rates and the bankruptcies of Chrysler and General Motors – the steel supply chain for automotive is drained of any excess material – based on this mornings conversation, GM and Chrysler could well be short steel as their supply base races to meet new production schedules and deals with mill lead times which are extending. I believe it is for this reason you are seeing AK Steel, ArcelorMittal, USS and Severstal so aggressive on their pricing announcements as their lead times start to extend.

Question of Demand – New Normal

The question you have to ask yourself is what is the “new normal” for the flat rolled steel industry? Is business truly down by 50% or more – or is it more like 20%-35%?

It is my opinion – based on both our market surveys and the detailed conversations I am having with service centers and manufactures across the country – that real demand has decline approximately 20-30%.

If that is correct – then the domestic steel mills should be at raw steel production utilization rates around 60%-70% for the 2nd half 2009. We are getting early indications the mills are booking at those rates as U.S. Steel is bringing back to life Granite City and our sources are telling us they may not idle the hot end of Fairfield after all. I also saw a report out of India this morning (Friday) quoting the CEO of Essar that their Canadian mill – Essar Algoma – would be running at 80% of capacity in July.

My belief is the stabilization of the manufacturing sector of the economy, inventory adjustments and some resolution to the automotive problems which is now leading to new production (or resumed production) plus a conclusion of the destocking of the service centers are leading to much improved utilization rates at all of the domestic steel mills.

Mills Bringing Back Too Much Capacity?

Of the mills who have capacity down – USS, ArcelorMittal, Severstal and AK Steel – so far USS has been the first to act to bring back capacity. We will have to wait and see who moves next. I do not expect AK Steel to keep both of their mills down if their order book will support them bringing their idled mill back up – Severstal and ArcelorMittal have tough decisions to make as they may have facilities that in reality are not able to perform at levels which can make their company money. I don’t know what those two mills will do going forward.

Direction of Scrap Prices:

Our sources are telling us scrap prices will go higher in July and due to the slow flow of scrap into the yards, high exports to countries like China and renewed buying interests from mills like Nucor – will move prices higher. Right now for the month of July the increased scrap prices are forecast to be $15 to $50 per long ton depending on the product and the area of the country.

With higher scrap prices – this supports higher steel prices and will make mini-mills like Nucor and SDI more aggressive to maintain and increase their prices.

What About Imports?

Normally imports are approximately 25% of the total U.S. market. Part of the reason being when our apparent consumption of steel was around 120 million tons the domestic steel mills did not have enough capacity to satisfy the market. Secondly, there are a number of mills located in the United States who use foreign slab or hot bands to produce their products. So, imports will never go to zero.

But, considering there are no new Section 201’s or dumping complaints against foreign flat rolled steel at this time – the amount of speculative foreign purchases is practically nil. Foreign prices have been higher than our domestic market on many items for some time. China has been a net importer for the past few months and the value of the dollar has not been conducive for a flood of foreign steel to be attracted to our shores.

I expect the domestic mills to push the envelope with their price increases to the point when the benefits of foreign steel may outweigh the risks of longer lead times and price uncertainty which has existed over the past few quarters. The new prices just announced do not appear to be at the point when foreign becomes a good alternative to domestic buyers.

Mill Pricing

Lastly pricing – as I just mentioned I expect the domestic mills to push prices to as high a level as possible. Remember, approximately 50% of mill production is on contract – so we are actually only talking about spot pricing.

I am not one to predict future pricing peaks – but I would anticipate the domestic mills want to get hot rolled to at least $500 per ton and possibly higher by early 4th Quarter.

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6 / 5 / 2009 - U.S. steel mill price increase announcements on hot rolled, cold rolled, galvanized and Galvalume steel

Fri, 05 Jun 2009 04:00:00 -0500

AK Set Up the Pins – the Rest of the Mills are Knocking ‘em Down

SMU Mill Scorecard

There’s are reason why I love the steel business – its times like these when one mill (AK Steel) comes out with a modest price increase (probably just to make a statement or to put a bottom to the decline in prices) and then the rest follow along behind pushing the number higher and higher in the process. At the same time, you have a weak economy as most company’s business is down 25%-50% compared to this time last year and the steel mills are running at 46% of capacity. Doesn’t sound like the best time to go for an increase – or is it…?

Let’s recap what Steel Market Update has been able to gather so far:

AK Steel – led the way with a base price increase of $20 per ton ($1.00/cwt) effective July 1, 2009. AK did not discuss specific base prices or any discounting of extras which may be happening at their mill.

Severstal NA – was the next to “officially” move with a 6% price increase. In an email to Steel Market Update the Severstal spokesperson made the following statements, “Severstal North America, Inc., today announced that it is raising non-contract transaction prices by six percent effective with orders scheduled for delivery July 1, 2009 and later. This action reflects, in part, the continued high costs of raw materials in view of weak pricing in the marketplace and allows Severstal North America to recover some of its costs.” In a separate statement the mill spokesperson went on to state, "We expect that, as a result of these changes, that the spot market average price for hot-rolled bands will be more than $400 per ton." Severstal was then the first mill to talk about specific pricing and to put a base to HR pricing.

Steel Market Update didn’t leave Severstal alone – through conversations with Severstal customers and other steel mills, there appears to be some confusion as to what 6% actually means (6% of what? Base price? Fully priced product? with full extras, half extras?). So, I asked the mill spokesperson to be more specific – especially regarding gauge and width extras as they have been discounted by this mill and many others. The response straight from their commercial department was, “Pricing extras reflect production costs and should apply in all cases.” I don’t know about you but that clears that subject up for me (not!).

Nucor – next up was Nucor which came out with their price announcement in a letter released late in the day on Wednesday. The Nucor letter said, “In the past few months, flat rolled pricing has reached unsustainably low levels when compared to the cost of raw materials inputs and other industrial commodity products. Further, we continue to match the output of our production facilities to the strength of our orderbook.”

For those reasons, effective with orders promised for shipment July 5th and beyond. The Nucor Sheet Mill Group will increase transactional spot prices by a minimum of $30 per ton. Additionally, we will restore the collection of all published price extras immediately.”

It is the last line of the price announcement which makes an old coated guy like me stand up and take notice. It has been well known in the galvanized marketplace that Nucor (and others) were discounting (or not charging at all) their gauge and width and other extras which are used to calculate a final fob mill price. Nucor was not charging other extras for other products as well. So, this could be a big number – more about that later.

Lead times – according to SMU sources Nucor’s lead times on coated steel is moving into the week of July 25th (7-8 week lead time as opposed to 4-6 week previously).

ArcelorMittal – At about the same time as Nucor’s letter – ArcelorMittal came out with instructions to their “Commercial Team Members”:

Although the economy is still fragile, the following positive activities indicate that our market has bottomed and we expect improvement for our flat roll business going forward:

U.S. manufacturing appears to have stabilized, although at a lower level.

The end of the inventory reduction cycle is complete and at record low levels.

Recent inquiry and order bookings have been steadily increasing.

Pent up demand continues to grow.

Steel demand has already improved in China, India and other parts of the world positively impacting the global market.

As you know, the recession has had a severe and serious impact on our business in many ways. Certainly, one of the most significant consequences to our performance is the dramatic erosion of pricing that has occurred. Much of this price erosion is a result of the marketplace turning inventory into cash and customers trading and selling among themselves. As a result, current transaction pricing has little relationship to the cost of manufacturing.

Now that the inventory adjustment period is behind us, it is imperative that we reestablish a starting point to begin the process of steadily recouping the value for our products that has been lost in the recent past.

As a result, effective with all new non-contractual orders placed for shipments July 1, 2009 through July 31, 2009 the following Base Prices will apply:

Hot Rolled Bands = $410/ton

Cold Rolled = $490/ton

Hot Dipped Galvanized = $490/ton

All appropriate extras will also be applicable.

Now we have a domestic mill who has spelled it out for everyone – HR base is $20.50/cwt, Cold Rolled base is $24.50/cwt + full extras where applicable and the Galvanized base is $24.50/cwt + full extras. I will discuss more about what this means a little later in this newsletter.

U.S. Steel – They used to be a leader and the largest mill in North America – they have since abdicated both positions and, as the U.S. Steel spokesperson put it to me, “U.S. Steel only discusses pricing with our customers.” At the moment, both the market and U.S. Steel customers are without guidance from the mill.

U.S. Steel - (June 10) - here is an update on the U.S. Steel pricing situation according to SMU sources - USS prices will rise $20-$30 per ton. No information yet on whether they will charge full extras.

California Steel - came out with a price increase announcement for the West Coast customers on June 4th – the letter to their customers contained the following, “Due to changing market conditions in addition to continued rising operating and raw material costs, California Steel Industries is increasing prices for all flat rolled products. Effective immediately with new orders placed and accepted for availability June 28th and later, the transaction price will increase by a minimum of $30.00/net ton.

I am trying to gather information as to how this will impact West Coast selling prices and how they compare to the mills east of the Rockies. California Steel customers are advising SMU their lead times are 4-6 weeks at this time.

CSN – market sources are telling Steel Market Update the Terre Haute, Indiana mill is raising prices by $30 per ton effective July 1st. Current lead time out of CSN according to our sources is the week of July 13th - 6 weeks.

The Techs – market sources are telling Steel Market Update The Techs (MetalTech, NexTech and GalvTech) are increasing their pricing by $30 per ton. There was no mention of any changes to gauge and width extras at this time. Lead times out of The Techs are the week of July 5th (5 weeks) as of Thursday afternoon.

USS/Posco (UPI) – market sources are telling Steel Market Update, USS/Posco (West Coast) verbally is telling their customers the mill is raising prices $20 per ton effective as of Thursday, June 4th I(I understand a letter was sent out confirming this late in the day ET). SMU will attempt to get more specific pricing information as soon as possible. UPI customers are advising SMU the mill’s lead times are currently 4-6 weeks.

Steel Dynamics (SDI) – market sources are telling SMU the booking rate (new orders) has increased fairly dramatically at SDI and the mill is currently running at approximately 60% of capacity (I am being told they are booking at more than 60% of capacity). Our sources have told us SDI is discussing higher prices with their customers but as of late Thursday afternoon were still in the process of reviewing all of the other mill announcements.

Duferco Farrell – market sources are telling SMU the order book has improved at Duferco Farrell and their mill may be running for the next two weeks where previously it was a week on then a week off. Duferco Farrell’s largest customer – Wheatland Tube – has hurt their order book due to the “Buy America” provisions but, the mill is doing better recently.

The mill announced late in the day on Thursday, June 4th the following, “The current price levels are unsustainable for Duferco Farrell and Sharon Coating given the current cost for our raw materials. Therefore, effective with new orders placed for July 1st and beyond we will increase the price a minimum of $30/ton.”

Sharon Coatings – Sharon Coatings announcement came very late in the day with Duferco Farrell’s, “The current price levels are unsustainable for Duferco Farrell and Sharon Coating given the current cost for our raw materials. Therefore, effective with new orders placed for July 1st and beyond we will increase the price a minimum of $30/ton”.

Market sources are telling SMU the conversion mills (Sharon Coatings, The Techs, Wheeling-Nisshin and CSN) are being squeezed by the lack of spread between cold rolled base prices and galvanized and their margins are being squeezed by the high cost of zinc and the fact that all of the light gauge mills have been discounting their coating extras. My understanding is their existing quotes are null and void at the end of this week. Lead times out of Sharon Coatings (as of Thursday afternoon) were the last week of July according to our sources (8 weeks).

Our Sharon Coating sources pointed out to SMU they are a light gauge galvanizing facility and compete with Severstal, US Steel, Steel Dynamics (SDI) and the other converters. The larger mills – Severstal, USS and SDI – will ultimately dictate what the conversion mills will be able to charge in the month of July.

Essar Steel Algoma - our sources have told us Algoma has increased their prices by $30 per ton.

Gallatin Steel – A market source advised SMU that Gallatin Steel is supportive of the industry’s efforts to increase the price of flat rolled steel products. The mill has seen an improvement in orders recently and has been at, or above 50% of capacity for some time. Lead times are starting to extend at Gallatin although my sources believe the mill is just about to close out June production. Our sources understand the Gallatin sales people are communicating with their customers and anticipate having a former price announcement out by no later than Monday of next week.

Wheeling Nisshin – market sources are telling SMU Wheeling Nisshin is reviewing the announcements made by the other domestic mills and will support a price increase. WN does not have a good handle on their input costs for the month of July so it is anticipated they will take a day or two to make a final pricing decision. Bookings have been stronger at WN and it was reported to SMU by our sources line #2 is booked solid for the month of June. Lead times as of Thursday were the week of July 17th on Galvanized and Galvalume and the 24th for Galvannealed.

Northstar/Bluescope – The mill did not return my calls. Other mills I am still working on gathering information include Ternium (LA) and Steelscape (WA).

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5 / 28 / 2009 - Subject: U.S. steel mills capacity utilization rates in 2009 and 2010, hot rolled steel pricing forecasts and the protential shakeout of excess capacity.

Thu, 28 May 2009 04:00:00 -0500

I read a Timna Tanners, UBS steel research analyst report on Thursday (May 28, 2009) regarding U.S. Steel and the steel market "recovery" in general. There were a number of points made which I would like to review with my readers: the domestic steel market will not return to "normal" levels and normal earnings during 2010 or 2011. There is still excess sheet supply and "well-capitalized mills loathe to yank the plug on high-cost capacity." UBS is forecasting capacity utilization rate of 50% for calendar year '09 (the first 4 months came in at 42.4% according to AISI data) - and then 62% for calendar year 2010 - which UBS says is below USS's break even point.

UBS also refers back to historical trends which show "normal" steel downturns lasting at least 2 years - with the last cycle lasting 3 years. Steel Market Update recognized the early stages of the downturn in steel prices back in late May/early June 2008 - however, the overall market crashed in September 2008. Based on the UBS's observation we will have to wait at least one more year if not two, before the market returns to a more "normal" state.

UBS is forecasting hot rolled coil pricing to remain stagnant through 2010 at approximately $460 per ton (SMU HR index is now $390 per ton so, $460 would be a nice move higher from current levels).

There should be a shakeout of higher-cost capacity as new mills come online - the Severstal, Columbus expansion and the new ThyssenKrupp mill are both slated to begin operations during 2010. Both mills are too far along to cancel - although postponing the start-up could be accomplished through delays in construction.

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