Distributors are gloomy on '99 sheet steel prices
By Tom Stundza -- Purchasing, 6/3/1999
Bullish steel analyst Kenneth Hoffman of Prudential Securities says the U.S. sheet steel market is poised for a rapid increase in prices this year. By and large, steel distributors disagree. In fact, service-center execs are concerned that sheet tags could soon fall back to first-quarter levels--or even lower.At the annual meeting of the Steel Service Center Institute (ssci) in Las Vegas, Hoffman told industry executives that hot-rolled sheet prices will rise from the current range of $280-$300/ton to $325-$350 by year end. By the end of 2000, he says hot-rolled prices might reach $400/ton because of long-termed sustained demand growth for steel and redirection of offshore steel to rebounding foreign markets. "You will be surprised this year at how high sheet prices will go," Hoffman says.
One sign of strong future demand, according to Hoffman, is the fact that flat-rolled steel inventories at service centers declined in March. He suggests that service centers may find themselves scrambling this summer to replenish sheet supplies.
It's important to note, however, that Hoffman is a contrarian. Most other analysts continue to hedge their bets, suggesting that steel sheet prices will rebound only gradually from recent lows. Most of the distribution executives interviewed by Purchasing at both the ssci meeting and an earlier meeting of the Association of Steel Distributors agree with this latter price-recovery scenario.
Distributors would like to see prices rise in so far as the trend would improve their margins and restore the value of their inventories. However, they remain concerned about potential for a new surge in low-priced imports during a seasonally weak demand period or the possibility that events such as labor strikes could paralyze automotive or other key end-use sectors.
"Demand is good, prices are competitive, and margins are lousy," says Bill Hickey, president of the Lapham-Hickey Steel service-center company in Chicago. "Of course, buyers don't care. As long as there's plenty of steel in the market, they're bargaining hard for the best price." While it's true that sheet steel stocks at service centers slipped in March, Hickey notes that imports rose that month after declining for three months.
While steel mills have been attempting to boost their prices, service-center execs say they had to reduce prices to compete with cheap imports last year and have not been able to increase tags quickly because of a supply overhang. "We went through a rapid price decline that took many of us on the supply side by surprise last year," says Anthony Sinatra, president of Tomsin Steel in suburban Pittsburgh. "I anticipate a rise off the bottom in 1999, but we haven't seen the spike in spot prices we were hoping for."
"The likelihood of mill increases for spring and summer holding is low," says Steve Bergman, president of Premier Steel Inc., Englewood, N.J. "Imports from Russia, Japan, and Brazil will slow because of dumping duties, but we have to look at the possibility that other countries will fill the void."
Expected new inventory coupled with potential for strikes against automakers late this summer, leaves many like Ron Chase, president of Action Steel in Astoria, N.Y., predicting lower prices in the second half. "There could be a fourth-quarter slowdown in real demand. If supply pours in [to the U.S.] all summer, there's a definite prospect of declining fourth-quarter prices," Chase says.
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