Steel companies sell their products either on a spot basis or to contract customers. Pricing in contract sales is reset at regular intervals depending on several variables, including prevailing spot steel prices. However, steel companies’ spot sales are more vulnerable to the volatility in steel prices.
Spot steel prices fall
Spot steel prices in the United States (VTI) have fallen steeply over the last couple of months, as can be seen in the graph above. This made spot sales unprofitable for several US steel companies. Steel companies have reduced their spot sales in response to depressed spot steel prices.
AK Steel expects its 4Q15 steel shipments to fall by 14% from 3Q15. According to AK Steel (AKS), “the lower shipments reflect AK Steel’s decision to reduce sales to the carbon steel spot market due to the adverse impact on pricing from high levels of imported steel.”
It’s important to note that prices of commodity-grade steel products have fallen more than those of value-added steel products. There is not much difference between commodity-grade steel produced in the US and that produced in China or Korea. This makes commodity-grade steel more vulnerable to imports.
ArcelorMittal (MT) produces several high-grade steel products for the automotive industry. It’s the leading supplier of automotive-grade steel products.
Lower steel selling prices
Steel Dynamics (STLD) expects its 4Q15 steel prices to “decrease meaningfully.” Nucor (NUE) also expects lower average steel selling prices in 4Q15. However, AK Steel expects its average steel selling prices to increase ~2% from 3Q15. This is due to a better product mix, as AK Steel expects to sell less commodity-grade steel products in the quarter. In the next part, we’ll discuss how steel companies expect to see their earnings play out in 4Q15.