Service Center Spot Pricing: Is Capitulation Close?

The percentage of manufacturing companies and service centers reporting distributor spot prices as weakening is nearing the SMU level of capitulation. Capitulation is the point at which steel distributors are panicking and dumping what is perceived as high-priced steel into the spot market at ever lower prices. The process feeds on itself and the distributors begin to hope for a change in market direction, which usually comes in the form of a domestic mill price increase. In the past, Steel Market Update has identified the point of capitulation to be when approximately 75 percent of the distributors report declining spot prices in our SMU Flat Rolled and Plate Steel Market Trends Analysis. We conducted our most recent analysis last week.

Sixty-three percent of the manufacturing respondents reported service center spot prices as declining. This is twice the percentage SMU collected at the beginning of September. The change in spot price direction has been quick and sharp as seen in the graphic below. At the beginning of July 2018, 75 percent of the manufacturing companies responding to our survey reported distributor spot prices as rising, not falling.