End-use buyers can expect the sheet steel market to remain chaotic and volatile at least through summer, suggest distributors, who insist they no longer can afford to sell flat-rolled to end users at the same prices they are being charged by the mills.

"We've seen a lot of distributors charging the same prices for flat-rolled that they have been paying the mills," admits Michael Melman, senior vice president of Dennen Steel Corp. in Grand Rapids, Mich. "As an industry, we can't afford to keep doing that."

Service centers should be charging as much as 35%-40% more for processing and cutting-to-length services for sheet sold to end users, says James Reid, president of Century Steel in Chicago Heights, Ill. "Unfortunately, with so many distributors chasing the same business, our industry has been giving processing away," he says.

These and other execs from midsize steel service centers interviewed at the recent Association of Steel Distributors (ASD) annual meeting in Napa, Calif., say they have accepted only $10 of the proposed $40/ton mill increase on hot-rolled carbon sheet, bringing their price to an average $240 for April deliveries. Meantime, they also say they've rejected the proposed $30/ton hike on cold-rolled, keeping their price at $340. Some, but not all, of the service center execs say they're paying the mills $10/ton more for hot-dipped galvanized, bringing the distributors' price to the $340-$350/ton range. As well, the service center execs say that neither fuel nor energy surcharges attempted by steel companies are sticking

The distributor execs attribute the small hot-rolled price hike success to reduced supplies of cheap imports and falling service center inventories. "Falling first-quarter imports and lower stocks are becoming somewhat evident, even though customers aren't really calling with new orders because they remain in inventory-reduction mode," says Century's Reid.

"As a broker, I can tell you that no one is calling us looking for steel right now," agrees Norm Katzman president of Kenwal Canada Inc. in Toronto. "However, that may change just as quickly as the shutdown in orders occurred."

For end-use buyers, all this market turmoil may translate into $240-$250/ton for late-spring hot-rolled sheet deliveries, the service center executives suggest. In February and March, hot-rolled prices to end users averaged $220/ton. "Sometime late this summer or early autumn, we've got to get back to a reasonable spread between our buy and sell prices," says Reid. Meantime, an Ispat Inland Inc. commercial executive told the ASD meeting that hot-rolled sheet steel could average $260/net ton in the U.S. market this year, based on an anticipated demand rally in the second half.

"This is a hard, bumpy landing, but we don't think we'll go into a steel-buying recession," according to James S. Smith, a director in the sales and marketing organization at Chicago-based Ispat Inland Steel. "The current downturn is part of a well-known cyclical correction process—a trimming of excesses from the metalworking economy," he says. "A turnaround is a sure bet. It's the timing that is at issue."

Flat-rolled prices have been at 20-year lows this year with manufacturing buyers paying substantially less, on average, than they paid in either 2000 ($298/ton) or 1999 ($277). "Prices are going to rise," says Smith. "They have to rise because they have been below the cash costs of production for many steel makers."

But "even though manufacturing growth has slowed, a lot of people are still buying steel," Smith remarks. He believes that service centers' excess inventories will be reduced dramatically by midyear and that a marked pickup in orders from service centers and end-use buyers will become apparent in the second half."

The service center executives say business during the current economic slowdown has declined 15%-20% since fourth quarter 2000. The distributors say that for the past several months they have been filling orders from inventories, which closed 2000 in excess, but are coming to a point where they will need to expand orders with the mills. The timing depends on status of new-order bookings by their end-use customers.

"I don't know that anyone has a really good gut feeling for when the phones are going to start ringing again with expanded orders," Maurice Loeffel, president of Loeffel Steel Products Inc. in Barrington, Ill., tells Purchasing.

However, Loeffel is optimistic about a second-half pickup in demand. He points out that the current slowdown in steel buying depends largely on which sectors of the economy and regions the end users serve. While automotive and off-road vehicle manufacturing firms are buying less steel, appliance and construction-related companies continue to buy at what the distributors term "reasonable volume." Also holding up better than expected have been shipments to machinery and energy goods industries, they report.