A number of domestic steel mills have thrown their weight behind a flat-rolled pricing increase in an effort to reverse a multi-week downward trend and push some mills back above their break-even points.

 

Severstal North America Inc. led the drive, telling customers in a letter Wednesday that it would raise prices for hot-rolled band to $33.50 per hundredweight ($670 per ton), effective with all new non-contract orders to be shipped on or after Nov. 28. Cold-rolled and hot-dipped galvanized steel prices will increase to $39 per cwt ($780 per ton).

 

The Dearborn, Mich.-based steelmaker didn’t say how the new prices compare with today’s range, but market sources have said that hot-rolled prices have slipped below $640 per ton ($32 per cwt), with some major mills said to be selling at a significant discount from that level.

 

The price hike was triggered by a need to "address the recent margin compression," Tom Marchak, vice president of commercial at Severstal NA, said in the letter to customers.

 

Severstal’s leading move was followed quickly by a number of competitor mills. NLMK USA sent a letter to customers Thursday announcing an immediate base price increase by a minimum of $50 per ton ($2.50 per cwt), which sources estimate would put the mill’s prices on par with Severstal NA’s new range.

 

"We have seen continuing strength in the energy, agriculture, heavy equipment and automotive markets, and while construction activity remains slow it is no worse than earlier this year. The economy continues to improve, albeit slowly," Jim Banker, executive vice president of commercial at NLMK USA, wrote in his letter. "However, over the past few months, we have also seen compression between market prices and raw material costs, and this compression has now reached an unacceptable and unsustainable level."

 

Sources said other mills had indicated similar moves, although not necessarily on paper. Essar Steel Algoma Inc., Sault Ste. Marie, Ontario, was said to have frozen its December order books on Wednesday in anticipation of an imminent price increase, which was delivered to customers by phone Thursday, sources said.

 

Meanwhile, distributor sources said Steel Dynamics Inc. (SDI), Fort Wayne, Ind., and Charlotte, N.C.-based Nucor Corp. had told customers Thursday to get their orders in "at the old price" soon, suggesting that they could be following suit in coming days.

 

"No one’s given us any official announcement of a follow; they’re all threatening it without actually doing it," one distributor source said.

 

A second service center source confirmed that all of his suppliers were talking about an imminent increase, whether or not it had actually come out on paper yet. "Everybody’s rattling the sabers," he said.

 

SDI declined to comment, while Nucor and Essar Steel Algoma didn’t respond to requests for comment.

 

Players along the supply chain said they welcomed the news of the increase, since it would help bump up the value of their declining inventories.

 

"Do I think it’s going to stick? I think maybe for the good of everybody, it’s best it does," one fabricator said.

 

But just because they hope it sticks doesn’t mean it will. According to distributor sources, a number of obstacles stand in the way of the price increase and its ability to gain traction.

 

"I don’t think it’s going to work. We all want it to go through and stick; I just don’t think there’s enough substance behind it," a third distributor source said. "I don’t think it’s going to inspire anybody to buy any tons."

 

Sources cited an oversupply of material, stable demand and falling scrap prices as impediments to the price hike sticking.

 

"We’re not buying into the increases psychologically. We know scrap will be down so that in itself will put pressure on these increases. (And) being that there’s plenty of capacity, it’s going to be very interesting," the first distributor source said. "The flip side of that coin is that they are kind of at that losing-money point, depending on the price and the mill, so there may be something behind that that can support it."

 

A fourth distributor source agreed. "I don’t think they’re going to be successful, but they’ll sure try as hard as hell. The reality is the mills are not making money, and who’s in business not to make money?" he said. "It might not raise prices, but what it might do is halt the slippage. It smells and feels more defensive in nature than offensive."