Trying to neatly summarize the North American steel market right now can give you a case of cognitive dissonance.
Domestic mills think they have some momentum, and they’re trying as hard as they can to get prices higher for Q1.
Case in point: ArcelorMittal has put the heft of one of the world’s largest steelmakers behind a round of price hikes initiated last week by Cleveland-Cliffs.
Cliffs said it was targeting base prices of $750 per ton ($37.50 per cwt) for hot-rolled coil, a figure that ArcelorMittal appears to be looking to achieve as well. That’s well above SMU’s current spot price — $670 per ton ($33.50 per cwt) — for HRC. And it’s hardly the highest number out there.
Wolfe Research Inc. metals and mining analyst Timna Tanners forecast on an SMU Community Chat late last month that HRC prices would average $775 per ton in the first quarter. That’s not the highest number out there, either.
HRC futures ended last week around $800 per ton for January, February, and March. Huge caveat: Futures don’t predict the future. There can be factors unrelated to supply and demand — a short squeeze, for example — that can lead to fluctuations on futures markets that might not reflect what’s happening in the physical market. That’s not the point, though. My point is that there is real bullishness in some corners of the market.
What explains it? Is there an upcoming furnace idling I’m not aware of? Will infrastructure spending or provisions in the Inflation Reduction Act stimulate demand more than I realize?
There is general agreement among the people I talk to that sheet reached a near-term bottom in November, and will continue to move upward into 2023. The debate is over how much higher prices might rise from here. My concern is that I’m not hearing the bullishness among some of my industry contacts that would typically come with conviction that HRC could hold around to $750-800/ton.
Big questions remain about underlying demand. ISM CEO Tom Derry on his Community Chat last week said there is a 50-50 chance the US economy avoids a recession. He also noted that the risks of a recession in manufacturing were higher. The overall US economy can avoid a recession even if there is a manufacturing downturn simply because services are a much bigger portion of domestic GDP than making stuff, Derry noted.
That, unfortunately, more closely matches what I’ve been hearing from some of you than does talk of $800/ton HRC.
One service center executive told me that his company had seen a significant uptick in business activity following the mill price hikes. “People who hadn’t inquired in months are now inquiring again,” he said.
Some have been surprised when told the prices they were offered two weeks ago — lower prices that they didn’t commit to at the time — are no longer valid because prices this week are higher. They had become used to prices falling from one week, and the realization that the downtrend is over has come as a surprise, the executive said.
But even with recent rebound activity, it’s hard to see how HRC prices get to ~$800 per ton and stay there. “We are cautious. Not cautiously optimistic. Just cautious,” he said. “We are going to try to make money for the next 2-3 months and then hunker down.”
One big reason for concern, besides uncertainty about demand beyond current restocking, is the certainty of increased supply. “We think it could get ugly this summer,” the executive said.
A manufacturing executive echoed those concerns. He said his company is still busy filling orders from its usual customers. Some, however, are buying less.
“You can’t sell from an empty shelf. And at some point, everyone’s got to place orders,” the manufacturing executive said. “But everyone is waiting to see what the economy is doing. Q1 is going to tell us a lot about what to expect for the whole year.”
His wish for 2023, one expressed by other sources as well, is that we might see a return to the mini-cycles that characterized the domestic steel market before the pandemic, and before the shock of Section 232 tariffs.
Imagine if US HRC cycled between approximately $700 per ton and $800 per ton! That would allow mills to be profitable and would make forecasting possible again. That hope is balanced by the fear that some unexpected event will come along and “upset the applecart” — leading to yet more volatility, he said.
By Michael Cowden, Michael@SteelMarketUpdate.com
Michael CowdenRead more from Michael Cowden
Latest in SMU Community Spotlight
SMU Spotlight: Tim Saxon Talks Electrodes
When you think about the steel industry, steel mills and service centers are probably at the forefront. But there’s one specific component that often flies under the radar: graphite electrodes.
SMU Spotlight: Metallurgy Moments With Roger Walburn
Sometimes the skills we obtain through our education can be used in ways other than we expect. Roger Walburn is a metallurgist who uses his specialty to help customers find the perfect fit. His knowledge of metallurgy enables him to get into the weeds with the technical aspects of steel, which educates his customers on […]
SMU Spotlight: AWMI Board Member Estelle Tran
There are many great, supportive organizations in the steel and metals industry. One that continues to grow as the industry evolves is the Association of Women in the Metal Industries (AWMI). Founded in 1981, AWMI is an international organization that was established to promote and develop the growth of women in the metal industries. AWMI […]
Lead Times Log First Decline Since January
Steel mill lead times are down for the first time since January, according to SMU’s latest steel market survey data. Lead times seem to be tapering off after climbing week over week for the past few months. SMU’s hot-rolled lead time is approximately 6.1 weeks, a 0.6-week drop from two weeks ago. While numbers are currently […]
SMU Spotlight: CRU’s Alex Anderson Talks Scrap
Some people like to talk scrap, but not many talk as much scrap as CRU’s Senior Analyst, Alexandra (Alex) Anderson. We sat down with Alex ahead of the ISRI conference to discuss the role scrap plays in the steel industry. A lightly edited version of the interview is below. Steel Market Update: How long have […]