Final Thoughts

Final Thoughts

Written by David Schollaert

Nucor on Thursday confirmed its plate prices would remain unchanged with the opening of its December order book. Though the market was anxiously awaiting the Charlotte, N.C.-based steelmaker’s announcement, few were surprised by it.

Why? It’s not clear that a price decrease at this stage in the fourth quarter would generate buying. And it would devalue inventory.

“I think it is the right move to keep pricing unchanged for December,” said one market participant. “It doesn’t seem like anyone is interested in building inventory at this time.”

That doesn’t mean prices will hold. I was speaking with several sources this week, and the consensus was that plate prices can’t hold for much longer.

“If I was in their shoes, I suppose it doesn’t hurt to try one more month to lead the market with unchanged plate prices,” said another source. “But I don’t expect it will hold into January. I suspect a $100-per-ton decrease is announced for January.”

Nucor has aimed to keep plate prices flat since announcing a $120-per-ton ($6-per-cwt) price cut on discrete plate on Sept. 19.

The cut and subsequent flat pricing have done little for Nucor’s shipping volumes. Plate shipments were down 20% sequentially in Q3, and nearly 40% year-on-year, according to the company’s earnings results. By comparison, sheet shipments were down roughly 9% and 4%, over the same period.

Meanwhile, hot-rolled coil prices have declined by 28.3% while plate prices have slipped by just 11.7%, according to our interactive pricing tool.

FinalThoughts 1106 Fig1

In short, plate prices have decoupled from hot-rolled coil prices. The two products used to trend together over time. Even as prices ascended to historic highs over the past couple of years, they moved largely in tandem. On the way down, that has not been the case.

SMU’s discrete plate price stands at $1,590 per ton, down 1.9% from $1,620 per ton a month ago and down 18% from a 2022 high of $1,940 per ton recorded in May.

SMU’s hot-rolled coil price is at $685 per ton, down 11.6% from $775 per ton a month ago and down 53.7% from a post-Ukraine war peak of $1,480 per ton in late April.

“The decoupling of HRC and plate is an issue, but we expect that we will see the current delta in price between these two products decrease as we go through 2023,” a third source said. “I don’t think they need to run in tandem, but the current delta is too large.”

“The gap between plate and sheet in my opinion should always be about 30-50%,” a fourth source said. “Certainly, the more-than-100% premium is not supported by radically different demand drivers at this point.”

There are potentially several dynamics at play. But probably none more so than competition, or the lack thereof. Plate is more consolidated than sheet. And so big players like Nucor, Cleveland-Cliffs, and SSAB Americas have a bigger say in plate prices. (By my tally, those three have accounted for approximately 3/4 of plate sales by domestic mills in recent years.)

“Plate prices are higher than most think they should be, and some of that is due to the fact that three suppliers control the majority of the market,” another source said. “We expect that pricing will start to erode as Nucor adds supply into the market.”

Cliffs was asked about plate’s price premium during an earnings call with analysts on Oct. 25. “The sustainability in pricing of the plate market is just about fewer participants and all of them responsible,” Cliffs chairman, president, and CEO Lourenco Goncalves said.

Goncalves compared that to the situation in sheet, where he said “totally irresponsible” pricing by certain mills in the US and in Canada had destroyed the market. “The market destruction affects everybody,” he added.

He didn’t seem concerned about Nucor’s new plate mill in Brandenburg, Ky, which is expected to start production by the end of the year. “Plate has been a playground for imports for a long, long time, and I’m happy that Nucor put the capital to deploy capacity where capacity is needed and is pushing imports out. That’s a good mentality.”

But some sources think it’s only a matter of time before the current “amicable” stance among plate producers wears off. They reason that Nucor’s Kentucky plate mill entering the market in earnest next year is when the gloves might come off.

That might not be until later in Q1 or early Q2 of 2023, when more meaningful volumes are expected from the mill. “There will be a fight over volume (market share), and this will most likely cause the price erosion,” one source said.

“The big three plate mils are currently playing nice in the sandbox, especially with imports at a minimum level,” another said. “We’ll see what happens when the new Nucor plate mill comes online, and an additional 1.2 million tons need a home.”

Could A New Deal Be on the Horizon?

Negotiations between US Steel and the United Steelworkers (USW) union are now into their fifth month following the start of talks in July and the Sept. 1 expiration of a prior contract. Could a new deal be imminent?

Late last week, the USW said in a text to members that its bargaining committee would be traveling to Pittsburgh to meet with US Steel on Tuesday, Nov. 8. “We are hopeful that USS has heard us: we deserve a fair contract!” the message read.

That’s a change from prior rhetoric, which was more heated and antagonistic toward US Steel’s senior management. Is that change meaningful, or are we reading too much into one text? We’ll soon find out!

As we’ve noted before, US Steel has expressed optimism about a deal being reached.

SMU Events

Our Introduction to Steel Hedging Training Course will be running virtually on our customized platform Nov. 30 – Dec. 1. This workshop is tailored for those looking to understand financial derivatives as an instrument to hedge price risk, protect margins, protect inventories, or offer long-term pricing to their customers. You can click here for more information.

Also, don’t forget to mark Feb. 5–7 on your calendar. That’s when SMU, together with the Port of Tampa Bay, will be hosting the Tampa Steel Conference. It’s a growing event, and a great reason to get out of the cold and catch up with hundreds of your closest friends in steel. You can register here.

As always, a big thank you from all of us at SMU for your business.

By David Schollaert,

David Schollaert

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