Cleveland-Cliffs Inc. has rolled out another $50/ton ($2.50/cwt) sheet price increase just a couple of weeks after doing the same in mid-January.
The Cleveland-based steelmaker has also announced a target base price of $850 per ton for hot-rolled coil, up from the $800 per ton announced in mid-January.
NLMK USA almost immediately upped the ante, and is now seeking $875 per ton as a base price for hot band.
We can debate all day about whether that’s too aggressive, whether it’s really intended to shore up prices in the low $800s per ton, or whether it’s justified by supply disruptions. Or maybe it’s a reflection of consolidation, trade protections, and the increased pricing power of domestic mills.
Suffice it to say that $850-875 per ton is a lot higher than $780 per ton, which is where SMU’s spot HRC price stands now. The big question now: Will $850-875/ton HRC stick?
Cliffs has announced four waves of price hikes since later November totaling $210 per ton. I had few doubts that the initial rounds of price hikes in November and December would stick.
Recall we hit a 2022 low of $615 per ton in November. The low end of our range, which typically represents the price for larger buyers, had dropped into the $500s per ton, according to our interactive pricing tool.
Finished steel prices might have been lower. But prices for everything from electricity to labor had gone up. In short, mills had to get prices up. Meanwhile, service centers, which had been grappling with months of falling prices, were willing to support the increases.
But do mills still need higher prices in the way they did in Q4? How many spot tons are being transacted at $850-875/ton? And does demand support such dramatically higher prices?
Lead times and Negotiations
Let’s look at some of the data that we collect. Take lead times and mill negotiations, both of which were updated on Thursday.
Hot-rolled coil lead times increased from 3.9 weeks to approximately 5 weeks between late November and early January. Lead times typically move roughly in tandem with prices. And the gains in lead times helped support prices rising from the low $600s per ton into the $700s per ton.
But lead times have since flattened out around five weeks. Don’t get me wrong, a five-week HRC lead time is healthy. But it’s a little unusual to see lead times flatten out and prices continuing to move sharply upward.
Changes in the direction of lead times sometimes foreshadow pricing moves. Are lead times indicating that steel prices are close to peaking despite continued price hike attempts? Or will the price hikes result in lead times extending again? We’ll see in the weeks ahead.
I know some of you think mill negotiations – whether mills are willing to lower prices to bring in new orders – is an even better advance indicator. There, too, things aren’t moving in the same direction as prices.
About half of respondents to our survey this week said mills were willing to negotiate lower prices, up from 44% two weeks prior. I try not to read too much into any one survey. And it’s possible this is just noise. But it’s something to keep an eye on. Because it’s hard to see how domestic mills can continue to publicly raise prices if a majority of them are quietly willing to negotiate lower.
Then there is also the question of how many spot tons are being transacted at these higher levels. I’ve talked to more than a few steel buyers who told me they loaded up on contract tons in January and February and don’t see a need to jump back into the spot market in a big way anytime soon.
It’s not uncommon for contract tons to priced at a discount to the prior’s months average spot price. Let’s use this as a rough example. SMU’s average spot price was $665 per ton in December. Let’s assume a discount of 5-6%. That means you could have ordered January contract tons at ~$630 per ton. It’s a similar story for February. Our average spot price for January was $742 per ton. A 5-6% discount to that would put you at approximately $700 per ton for February contract tons.
In other words, you’ve got material priced in theory $150-245 per ton below what some domestic mills are seeking now in the spot market. Some buyers have told me that, yes, they had some big holes to fill in Q4. But they filled them mostly with contract buys. And the holes they’re filling now on a spot basis are for niche items and/or on an as-needed basis.
So, yes, prices are higher. But on how many tons?
There is little doubt that mills have a stronger hand than they would otherwise because of production issues at a major producer in Mexico and because new capacity in the US continues to be slow to ramp up.
But it’s also true that there are clear pockets of weakness in some important end-markets for sheet. Benton Harbor, Mich.-based appliance maker Whirlpool announced it lost $1.6 billion in the fourth quarter. Its Swedish rival, Electrolux, also reported steep losses.
It’s no secret that white goods are suffering a hangover from pandemic-era binge buying of durable goods. They’re called durable goods for a reason. If you bought a new fridge in 2020-21, you probably aren’t going to need another for a while. Also, higher interest rates are doing nothing to help residential construction, another important driver of appliance demand.
Some of you will point out the dynamics for other markets – energy, automotive and newer markets such as renewables – might be better. Still, despite some very real supply constraints, I find it a little unusual to see steel prices apparently galloping upward with demand in some pockets clearly struggling.
By Michael Cowden, firstname.lastname@example.org
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