SMU Service Center Spot Pricing: No Capitulation

Last week, Steel Market Update concluded our early January analysis of the flat rolled and plate steel market trends. One of the key areas we watch is how service centers are handling spot pricing of flat rolled steels to their end customers. Over the years we have learned that when service centers are raising prices, they are also supporting price increases out of the domestic steel mills. When distributor spot prices are being lowered, the service centers are not supporting any move (or potential move) by the domestic steel mills to raise pricing.

However, there is a time when more than 75 percent of the service center community is advising Steel Market Update that they are lowering spot prices. Our data suggests that at that point, the distribution community is suffering financial strain due to the lowering of inventory values. SMU calls this the point of “capitulation,” which means the pain is intense enough, especially if prolonged over an extended period of time, for the service centers to become supportive of any move taken by the domestic steel mills to reverse the direction. This usually comes in the form of a price increase announcement out of the steel mills.