Steel prices are always unpredictable, but a confluence of recent events is making price prognostication more difficult than usual.
Steel prices have plummeted along with demand ever since the coronavirus appeared in mid-March and undermined the economy. The benchmark base price for hot rolled steel is down to $460 per ton, based on SMU’s canvass of the market this week. That’s unchanged from last week, though prices for other flat rolled products weakened by a further $5-10 per ton.
U.S. Steel, UPI and AK Steel each announced a $40 increase in flat rolled steel prices today. The price hike was unexpected by some, who believe it is highly unlikely to stick given the surging virus and questionable steel demand. Others applaud the move. Said one SMU source: “They have nothing to lose. My sense is inventories are righting themselves and the industry is busier than some make it out to be. Imports will disappear in Q4. If the increase fails, some minimills will try next month after scrap bottoms out. In any event, I am optimistic that the bottom has been reached or is within eyesight.”
That seems to be the consensus view. Two-thirds of the respondents to SMU’s market trends questionnaire this week said they believe hot rolled steel prices are at or near the bottom. Here are some comments:
“I expect pricing to bottom out for a while in July/August, but then weaken again in Q4.”
“Asian prices are on the rise and thus less imports from these sources. We are pushing the cost levels of HRC. So, prices are close to a bottom.”
“I think the integrateds are backing away from producing at losses and the minimills are reaching their bottom limits as well.”
“I believe closer to $400/ton is the bottom.”
“Spot will certainly hit $400.”
“I think the JSW shutdown and AM blast furnace issue will be a stabilizing factor.”
Considerable capacity was removed from the market this month when JSW USA opted to temporarily idle operations at its Mingo Junction mill due to the difficult market conditions. The EAF at Mingo Junction has a 1.5 million metric ton capacity. A few days later, ArcelorMittal was forced to take down furnace D at its Burns Harbor mill when an explosion and fire damaged the 2.48-million-ton capacity BF. Normally, taking nearly 4.0 million tons of production out of the market so abruptly would have an impact. But sources point out that Mingo Junction was operating at a limited level and ArcelorMittal says it can continue to meet customers’ needs by shifting production to other facilities. So, the capacity may not be missed, in terms of tightening supplies and helping to firm up steel prices in the short-term.
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I’ve had discussions with some of you lately about where and when sheet prices might bottom. Some of you say that hot-rolled (HR) coil prices won’t fall below $800 per short ton (st). Others tell me that bigger buyers aren’t interested unless they can get something that starts with a six. Obviously a lot depends on whether we're talking 50 tons or 50,000 tons. I've even gotten some guff about how the drop in US prices is happening only because we’re talking about it happening.
We’ve all heard a lot about mill “discipline” following a wave of consolidation over the last few years. That discipline is often evident when prices are rising, less so when they are falling. I remember hearing earlier this year that mills weren’t going to let hot-rolled (HR) coil prices fall below $1,000 per short ton (st). Then not below $900/st. Now, some of you tell me that HR prices in the mid/high-$800s are the “1-800 price” – widely available to regular spot buyers. So what comes next, and will mills “hold the line” in the $800s?
Everyone knows the old saying that “a picture is worth a thousand words.” Just because it’s a cliché doesn’t mean that it’s wrong. A lot of inked has been spilled trying to figure out why prices are falling now. I thought it might be as simple as this: Market dynamics in the fourth quarter (UAW strike, companies buying ahead of an anticipated post-strike price spike, etc.) pulled forward restocking activity that typically happens in the first quarter.
What a difference a month makes. There are a few full bulls left in the room, but their numbers are dwindling. We’ll release results of our full steel market survey tomorrow afternoon. I took a sneak peak at the data on Thursday. And more people than I expected think that US hot-rolled (HR) coil prices will be in the $700s per short ton (st) two months from now. Vanishingly few think prices will be above $1,000/st in mid-April.
Sheet prices have fallen again this week on shorter lead times, higher imports, and potentially higher inventories. (We’ll see for sure when we release our service center shipment and inventory data next week.) I remember reporting almost exactly the same thing about a month ago and getting a fair amount of pushback. Not so much these days.