SC Spot Prices Under Pressure

In Thursday evening’s issue of Steel Market Update we advised that our SMU Pricing Momentum Indicator continues to point to lower steel pricing over the next 30 days. One of our service center readers pointed out two reasons why he believes pricing will move lower when he wrote us, “Prices here are falling due to a) over-supply of inventory (driven by imports) and b) lower input costs for the mills. At some point, the over-supply will come back to balance, but I believe that the lower input costs for mills will be here to stay for a while. So, we will likely see the price over-correct lower until we get back to a supply and demand balance, and then it should recover back up to a level which reflects input costs and correlates to other global prices. My guess is that the low will be in the high $400’s and the future “balance” price will be in the low-mid $500/ton range.”

Service center inventories are a big part of the pricing equation. At this time last year the distributors were still relatively balanced and buying steel on a somewhat predictable basis. However, the price spread between domestic and foreign steel had grown to levels where even the meek distributor became a foreign buyer. The mills were slow to react and the flood gates opened and foreign steel has been pouring into the U.S. at a record pace. January import licenses are pointing toward a continuation of the trend.