Final Thoughts

Final Thoughts

Written by Michael Cowden


It looks like domestic mills are trying to establish a floor at around $800 per ton ($40 per cwt). They’ve arrived there by different means. And whether they’ll be successful remains to be seen.

Suffice it to say that some mills that were very, very aggressive in July and August in the spot market aren’t nearly as aggressive now.

gearsIt wasn’t exactly a straightforward path to what appears to be a semi-unified attempt now to put in a floor.

Recall that Nucor kicked things off back in early August when it announced a price hike of $50 per ton ($2.50 per cwt). Other domestic mills didn’t follow, not initially anyway. Instead, they made aggressively lower offers.

Case in point: when Nucor was trying to hold a line around $820-830 per ton – even for customers looking to place thousands of tons – other steelmakers were accepting big orders way below that figure.

That continued right up until Steel Summit, when Cliffs announced a price hike of $75 per ton on the afternoon the event concluded. What still strikes me is that Cliffs’ approach, whether intentional or not, closely resembled that of the former AK Steel, which Cliffs acquired in 2020.

AK, like Cliffs now, was focused largely on the automotive sector. And its executives in public comments would often say that the value-added, contract market was their priority. They would say that they didn’t want to play in the spot hot-rolled coil market. Except that they did now and then. There was a running joke among some of us who used to price HRC. AK didn’t play in the spot market. Except when it did, and then the steelmaker tended to wreck it.

I wouldn’t say that Cliffs did that. But they did, in true AK style, announce a price hike via press release. And that should give them some incentive to try to hold the line now.

A wave of maintenance outages coming up this fall at various domestic steelmakers could also help tighten supplies and perhaps keep the floor from falling apart. There are also broader factors that could support a price floor of around $800 per ton. European steelmakers, like European aluminum smelters, have been forced to idle production on increased natural gas and electricity costs. Could the wave of idlings reduce supplies enough to force a bottom in Europe too?

These factors might in addition help mills position themselves well ahead of fall contract talks. That said, it all comes back to demand. And mills don’t have the same bargaining power they did this time last year when prices were at an all-time high of $1,955 per ton. Maybe they’re not budging on base prices. But it’s our understanding that other things – grade, thickness, and width extras along with pickling charges, for example – are up for negotiation.

And some of the factors I noted above in support of a price floor can be argued both ways.

Let’s go back to Europe. Yes, European supplies will be dramatically reduced. But the same energy crisis forcing steelmakers to idle furnaces could force European consumers to choose between paying utility bills or spending on experiences and stuff. Does that mean we could see demand destruction there?

And, speaking of outages abroad, let’s not forget that Typhoon Hinnamnor hammered South Korea last week. The blast furnaces at South Korean steelmaker Posco’s Pohang Works might be restarting. But it’s our understanding that its hot-strip mills will be down for longer. That should reduce capacity, right? Of coil. But what happens to slabs that can’t be rolled? Where will they end up?

Even fall outages in the US can be argued both ways. If the market is strong, such maintenance is often pushed back, not pulled forward or extended. While extended outages can reduce supplies, it’s only a temporary fix. It allows producers to buy time in hopes of the market improving.

And time might not be on the side of producers. Case in point: It’s our understanding that new capacity, as it often does, is buying its way into the market to a certain extent. That means we’re seeing some generous freight equalization and prices in the mid-$700s per ton from newer mills.

Will those move higher as order books fill, or will they hang around in the market?

By Michael Cowden, Michael@SteelMarketUpdate.com

 

Michael Cowden

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