2017 selling prices
As we’ve already seen, steel companies reported a quarterly fall in their 4Q16 average selling prices (or ASP). This was largely expected given the trend in spot steel prices. In this article, we’ll look at the different factors that could impact steel companies’ 2017 ASP.
Steel companies like U.S. Steel Corporation (X), ArcelorMittal (MT), and Nucor (NUE) sell their products either on a spot basis or on contracted sales. AK Steel (AKS) has the highest exposure to contract sales in our coverage of steel stocks (XME). Contract sales, especially annual contracts, were a headwind for steel companies in 2016. Most of these contracts rolled over while spot prices and market sentiment were quite subdued.
However, the scenario is much different this year and one could expect that the annual contracts, especially those linked to spot prices or the raw material index, rolled over at higher prices as compared to the previous year. This could positively impact steel companies’ 2017 ASP.
Spot steel prices are also holding steady after the big spike in November and December 2016. Although we’ve seen slight moderation in spot HRC (hot rolled coil) prices, not many expect a big fall in spot prices—at least in the near term.
Higher spot prices coupled with higher contract pricing could positively impact steel companies’ 1Q17 ASP. This should also support steelmakers’ earnings.
Meanwhile, lower ASP had a negative impact on steel companies’ 4Q16 profitability. We’ll discuss this more in the next article.