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A Key to Steel Pricing is Scrap

I have been watching scrap prices over the past few weeks since Chrysler stopped the auction process which was used to create the prime bundles market pricing.  According to Steel Business Briefing’s scrap reporter, with whom I converse on a regular basis (who is a steady reader of the Steel Market Update and calls my newsletter a “must read”); the price of prime scrap has risen by $130 per ton to $885-$900 per ton since June.

Shredded scrap has been moving higher as well and is currently being quoted at $600-$610 per ton and is believed to have room to move even higher as the month progresses due to the wide spread between prime bundles pricing and that of shredded scrap.  According to SBB’s sources the expectation is for shredded to go to $620-$640 per ton.

Scrap is used by all mills – whether fully integrated (BOF) or mini (EAF) and a number of mills are reported to be short scrap at the moment.

Higher scrap prices are going to put pressure on the domestic mills to keep prices up and perhaps be used in both contract negotiations as well as spot pricing as a reason for prices to go higher in the future.  I am not advocating higher prices just trying to keep you aware of price pressures that may come back on the steel buying consumer at some point in time.

Source: SteelMarketUpdate

Speculators Driving Commodity Prices? Think Again

Everyone wants to blame “speculators” on the rising price of oil, steel, iron ore and various other commodities.  It is an easy way to explain soaring commodity prices. However, the credit crisis may well be the culprit and the problems may continue to exist to years to come.

The way to get prices down for steel and other commodities is to increase supply relative to demand.  Unfortunately, as many large companies already know credit agencies and banks are not willing to take the risks necessary to fund large venture steel and mining projects (thus increasing supply).

Mr. Dan DiMicco,president and CEO of Nucor, brought it home when he told the audience in New York last week, “…the credit agencies have tightened up their sphincters so much that they’re not even willing to talk to the highest-rated investment grade mining and metals company in the world and keep their rating if we borrow $3.  So, we are paying the penalties of the bankers on Wall Street and the other banks around the country and rating organizations that were broke and hopefully will be fixed.”  Nucor recently had to do a secondary stock offer to raise $2 billion dollars.

If you read my articles last week about the growth of the demand for steel in the world at between 3%-6% meaning as much as 90 million tons of new capacity will be needed each year, then you are aware the need for iron ore, metallurgical coal, coke and other steel making inputs will be necessary.  What hasn’t been explained to the steel using community is the devastating affects the credit crunch is having on large companies such as Rio Tinto, BHP Billiton and even more damaging to smaller mining concerns.  According to Jeff Christian, managing director of CPM, a New York based commodity advisory firm – “The financing on those mining projects has slowed to a trickle.”  He believes at least two years of development work and perhaps as much as five will be lost before the credit crunch is over.

This will keep commodity prices high for years to come.

That will keep steel prices much higher than we can now imagine – for years to come.

Don’t be tricked into believing the current weakness in U.S. prices (mostly related to galvanized) is going to be a long term trend. (Resource: TheStreet.com)

Latest Steel Price Trends

Reference Prices for the week ending June 29th look like this:

Hot rolled coil – prices up $15 per ton ($.75/cwt) to $1,089 per ton($54.45/cwt).  Over the past four weeks HR coil has increased $2 per ton ($.10/cwt) or 0.2%.

Cold rolled coil – prices went down $4 per ton ($.20/cwt) to $1,155 per ton ($57.75/cwt).  Over the past four weeks CR coil has decreased $16 per ton ($.80/cwt) or -1.4%.

Galvanized coil – prices remained flat (no change) this past week and remain at $1,221 per ton ($61.05/cwt) for .060 X 48″ G90 CS/B. A note here – The Steel Index is showing galvanized coil in Turkey to now sell for $66.25/cwt in their domestic market or, +$5.20/cwt higher than here in the U.S.

Stock Levels in North America showed a significant increase from the previous week.  35% of the respondents are now reporting “increased” inventory vs. only 15% last week.

Steel Demand Outlook for the Next Three Months in North America showed a significant move towards “decreasing” or “strongly decreasing” demand.  Close to 60% of the respondents believe demand will decrease.  Of all respondents only 10% forecast an increase in demand.

Delivery Lead Times -shot up on Cold Rolled to 8.0 weeks – which leads me to believe last week’s number was incorrect (6.5 weeks).  Hot Rolled remained about the same at 6.0 weeks and Galvanized moved from 7.6 to8.6 weeks – this number will need to be reviewed again next week as galvanized lead times have been averaging in the 7 week lead time for a number of weeks and I find it hard to believe in the current market galvanized lead times are starting to extend.  (Source: The Steel Index)

World Material Handling Equip. Report

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Here’s a brief summary of the report:

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You can purchase this report today at reportlinker.com.

Rolled Steel Prices Continue to Rise – Recent Flooding Causing Delivery Delays

European hot rolled and cold rolled prices continue to rise. The American Metal Market is reporting that some European mills have already booked hot roll coil orders at $1,187 to $1,234 per metric ton ($53.85/cwt to $55.97/cwt) and cold roll coil at $1,311 per metric ton ($59.47/cwt). These prices are in line with the July and August prices asked by the U.S. mills.

Floods are closing a 216 mile section of the Mississippi to barge traffic due to the flooding in the Midwest. The shut-down is expected to affect barge traffic for up to two weeks. This will affect some domestic mill shipments as well as imported steel shipments coming out of New Orleans and Houston ports.

NEWS ALERT! – China Puts Halt to Steel Exports

Under government mandate today, it was announced that Chinese steel products for July production will not be available for exports, as they are to remain in the domestic market to be used in the relief efforts for the devastating May 12 earthquake in China.There is market chatter suggesting that the Chinese mills are having trouble getting orders and may move their prices down a notch for their next offering. Today 100,000 people effected by the recent earthquake in China were relocated once again due to mud slides now effecting the region during the current rainly season.

Has the US Hit it’s Peak?

US flat rolled mills have increased their prices every month so far this year, but now there are talks that demand may be faltering, and there is more hot rolled coil (HRC) availability.

Has the market finally reached its peak?

The flat rolled market has seen a wave of increases since the beginning of this year. Domestic mills have continually upped their prices to keep up with rising raw material costs and strong demand. But now it seems the market may be leveling off. Either that or perhaps a seasonal slowdown is occurring.

All of the major domestic mills made their July price announcements a couple of weeks ago, and to customers
surprise, the increase wasn’t as hefty as some expected. Whereas a couple months ago, increases were in the three-digits, the most recent one was modest comparatively. Two major mills even extended their July pricing through the month of August as well, suggesting that things may finally be beginning to cool off.

There have been a couple explanations for this, but most agree, as galvanized coil demand was losing its momentum, mills shifted their production to HRC, as that product was much stronger. Now, ironically, there is more tonnage available and not as strong of a demand for it. This could just be the usual summer doldrums, but it could also be the flat rolled market finally hitting the peak of its latest price rally.

The above offers are for August production and October deliveries as Chinese steel products for July production will not be available for exports, as they are to remain in the domestic market to be used in the relief efforts for the devastating May earthquake in China, according to government mandate.

Steel Prices – Which Way is the Market Going?

The Steel Index Reference Prices for last week (The Steel Index is owned by Steel Business Briefing).

Below is a quick summary of the past two weeks.

Hot roll coil prices – were up $5 per ton each week for the past two weeks (total of $10 ton). Over the past four weeks the change has been +$39 per ton ($1.95/cwt).

Cold rolled prices – were up by $11 per ton two weeks ago and another $10 per ton for the week ending May 18th (total of $21 per ton). Over the past four weeks prices have been higher by $69 per ton ($3.45/cwt).

Galvanized prices – were higher two weeks ago by $20 per ton. This past week the number was down by $9 per ton (total for the two week is +$11 per ton). Over the past four weeks galvanized has been higher by $73 per ton ($3.65/cwt).

Lead times – have been extending according to The Steel Index. Hot Rolled lead times are out to 7.3 weeks. Cold Rolled lead times are out to 8.7 weeks and, galvanized lead times are at 7.7 weeks. All three are slightly longer than the previous week’s report.

Stock Levels – appear to becoming very stable. 70% of respondents reported “no change” while only 15% each reported that their inventories “increased” or “decreased”. Sounds like a balanced inventory situation to me.

Demand Outlook over the Next 3 Months – demand appears to be leaning toward a decrease as 10% of the respondents are now reporting that business will “strongly decrease”, another 20% called for a “decrease” and about 50% called for “no change”.

Price Outlook for the next 3 months – continues to be heavily weighted towards believing that higher prices are ahead during the next three months. However, 10% of the respondents “strongly disagree” with that assessment.(Source: The Steel Index)

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