How Steel Prices Drift Lower

Steel Jun 17, 2011 No Comments

Steel coilUsually one or more of the mills who had announced price moves begin undercutting the existing price levels in order to fill their order books. The mills who move first are generally well known within the industry as they are committed to keep their equipment (furnaces, etc.) running full.

Earlier today I had a conversation with a service center executive I have known for a good portion of my personal steel career. We were discussing the flat rolled steel market and the specific pricing policies of one mill in particular (to remain nameless). What I found interesting, is the discussion turned to the pattern used by domestic steel mills which ends up breaking down flat rolled steel prices causing the market to drift lower.

The pattern, or cycle, goes something like this…

One or more domestic mills make a pricing announcement.

Everyone “gets religion” and puts out new higher prices. The mills tout the new numbers to their customers.

The result is buyers move to those mills who have not announced or who are willing to negotiate. The mills touting the new numbers order books begin to suffer.

Usually one or more of the mills who had announced price moves begin undercutting the existing price levels in order to fill their order books. The mills who move first are generally well known within the industry as they are committed to keep their equipment (furnaces, etc.) running full.

The purchasing managers keep the mill sales people for the rest of the steel industry informed as to what is being negotiated. As the numbers become “public” what gets lost in translation are the details (tonnage requirements, month of production, product requirements and restrictions). This creates angst amongst the other mills that are then forced to compete with lower numbers or the perception of lower numbers.

via How Steel Prices Drift Lower | Steel Blog: “Steel Prices, News and Analysis” > Official Blog of STEEL MARKET UPDATE.

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Rod Sherkin

Rod is a former senior executive, responsible for Purchasing, for both Pillsbury and Ball Packaging back in the 80’s and 90’s. Since then, he has continued to work in the Purchasing field as both a consultant and founder of the website Propurchaser.com.

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