SMU Data and Models

SMU Price Momentum Indicator Adjusted to “Higher”

Written by John Packard

Steel Market Update (SMU) is adjusting our Price Momentum Indicator to “Higher” from Neutral. It is our opinion that flat rolled steel prices in the United States and Canada will move higher over the next 30 to 60 days. There are a number of reasons why we have chosen to make this move now, here are just a few:

It has been one week since the domestic steel mills, prompted by US Steel, began raising flat rolled steel prices. The steel mills in both the U.S. and Canada have been consistent, with each announcing a $30 per ton price increase. We did not see any mills supplying a specific base price as being “the” number. However, steel buyers are reporting HRC offers as being in the $480-$500 per ton range ($24.00/cwt-$25.00/cwt).

As this past week moved on we saw mill lead times begin to move out (get longer), especially on the weakest product, hot rolled. We saw lead times on hot rolled, which two weeks ago were running one to three weeks (with many mills producing orders early), now extended by two to three weeks at most mills. This is bullish for not only collecting the $30 per ton increase but is also supportive of future increases should the domestic mills decide that is the direction they wish to take the spot market. With many 2017 contracts in negotiations, it behooves the domestic mills to collect as much of the increase as possible as soon as possible.

Steel input costs are moving up with higher scrap prices forecast for November and December (see article in tonight’s newsletter).

Mills are also seeing higher pig iron prices as described by one of our BPI (Brazil Pig Iron) sources, “The is very little BPI being bought now by USA mills.  Prime scrap is cheap in relation to BPI and coking coal is making it more expensive so the gap in value in use is now widening. If they would buy BPI the price would be about $255-265 MT Nola.   With a minimum of $20 -30 MT freight up river it does not compete with bushel IMG @ $200 GT delivered works.”

Integrated mills are dealing with higher iron ore costs with Chinese spot prices on 62% Fe being $63.6/dmt (dry metric ton) on Friday. Coking coal prices have doubled (coking coal is needed to make coke a product used in the blast furnace at an integrated steel mill). These input costs are being reflected by higher foreign steel prices around the world.

This brings us to foreign imports and import offers into the United States. At this time there are very few hot rolled coil offers coming out of countries outside of NAFTA (Mexico and Canada). We asked one of our trading friends who they see offering HRC into the U.S. market right now. We were told, “Mexico, Korea, New Zealand with limited tonnage available and Japan out of Tokyo Steel.”

We are learning that the Turkish hot rolled suppliers are out of the market due to better prices in their home markets and extended lead times (plus higher input costs). There are other countries, like Egypt, that have been kicking the tires in the U.S. but have actually taken very little tonnage. We can see that when we look at the import license data and Egypt has, essentially, no license requests on hot rolled in the past 18 months.

When we look at cold rolled and coated steels (galvanized and Galvalume), we find there are more countries interested in the product (possibly due to the wider than normal range between hot rolled base pricing and that of cold rolled and coated). However, there are a number of countries who are not going to be viable to export to the United States due to the Antidumping (AD) and Countervailing Duty (CVD) actions taken by the domestic steel mills.

Two of the largest exporting countries in the world: China and Russia are out of the U.S. HRC market and, in the case of China, out on cold rolled and coated products as well.

We even have Vietnam being pressured, as the domestic mills have filed saying the Vietnamese steel coming to the United States is nothing more than the Chinese trying to circumvent U.S. trade laws.

With the number of foreign suppliers being limited and world prices rising, we believe the U.S. mills are well positioned to take flat rolled steel prices higher in the coming months.

Steel Market Update is of the opinion that the domestic steel industry has moved the needle from Neutral toward Higher flat rolled steel prices for the coming 30 to 60 days.

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