Over here at Premium Steel Sales – or at least in my office, things seem to have slowed down a bit. Steady thankfully, but not at all gang buster territory. I would normally attribute this to holiday time (as I noted in my blog post here: http://premiumsteelsales.com/it-seems-like-its-that-time-of-the-year-again-but-is-there-more-to-it-than-that/) but check this out and tell me how you read the tea leaves?:
Most, if not all of the mills have announced steep increases effective immediately. This is not the first announced increase either. Last month the mills announced price increases and they are right back at it again. How do we understand this? Is this their way of preventing a slide or stopping a slow down? Or, is there really something to this as the Section 232 deadline looms? Do they know something that we don’t?
It may just be that the steel industry is very content with the overall trend from this past year and is attempting to keep the streak alive – see this:
Here is a comment made to me by a research analyst in the field:
“The mills also want leverage heading into contract discussion.” So maybe it’s just timing conveniently set up for contract buyer season. (We at Premium Steel Sales are actually a spot type buyer so contracts are not really in our wheel house…)
There is also the sense that that a tug of war exists between the producers/sellers and buyers in the steel industry. The producers want to reap greater margins while buyers do not want to take a hit paying for material and then having to pass that cost along to their customers.
What is even more interesting is the fact that although Hot Rolled material is seeing the brunt of this attempted increase, Hot Dipped Galvanized Steel has not really budged. The spread between Hot Rolled and Hot Dipped Galv has narrowed recently – although that is very good news if history is a meaningful yardstick for us anyway.
This paints the picture and a paragraph for us:
Here is some interesting research that my friend Todd Moughler at Magic Coil Products http://www.magiccoilproducts.com/contact/ culled on this topic:
“I have been tracking the weekly CRU numbers since 2012. Here are some interesting stats regarding the spread between HR and Galvanized:
- Jan 2012 through Dec 2015 – Avg spread = $116/ton (High = $149; Low = $95)
- Jan 2016 through Oct 2017 – Avg spread = $195/ton (High = $225; Low = $129)
- 2017 – Avg spread = $196/ton (High = $225 (2/15/17) ; Low = $141 (11/15/17))
- The past 6 weeks, the spread has dropped $56/ton ($197 to $141)
Thankfully, we have seen an end to the large spreads which are due to:
Massive amounts of foreign galvanized imports
Increased galvanized tonnage capacity (which is only going to get worse with additional galv lines in production)
Increased demand for domestic HR from the energy sector”
We shall see where this all takes us but in the meantime, even with all the ups and downs we have plenty to be thankful for and with that I would like to wish you a very happy and healthy Thanksgiving!