Final Thoughts

Final Thoughts

Written by Michael Cowden

First, the important stuff: May the fourth be with you!

Second, steel market participants tell us that several domestic mills have become significantly more aggressive on prices of late.


I’m not sure of a Star Wars analogy for that. Prices being slashed with light sabers? I’m open to suggestions.

Let’s say it takes tens of thousands of tons in a galaxy not that far away to get HRC in the $900s per ton ($45s per cwt). There are a limited number of buyers who can place orders like that, and such deals are not typically considered to be repeatable spot buys.

Now, someone buying a few thousand tons, we’re told, might be able to achieve a price in the $900s per ton. That doesn’t mean fantastic deals are available to someone buying a few trucks or rail cars. But are some very competitive prices now available to someone buying a barge or two? It would appear so. Our understanding is also that very large buyers, those able to buy tens of thousands of tons, are now looking at prices in the $800s per ton.

Let’s consider that range for a moment. Mills might be officially asking for $1,200 per ton. SMU’s latest price was closer to $1,100 per ton. Large buyers might be looking at prices in the $800s-900s per ton. That means there is, in theory, a $400-per-ton gap between where mills might be offering material to smaller spot buyers and where some of their very largest consumers are buying. Pre-pandemic, a spread like that would have been almost inconceivable.

Post-pandemic, it seems to almost have become the norm.

The obvious example is 2020-2021. We saw HRC prices jump from $440 per ton August 2020 to nearly $1,955 per ton a year later as demand snapped back and supply was unable to catch up – a $1,500 per ton difference. Short-term variations can be almost as big as the $500-600 per ton HRC often traded at before the pandemic.

Case in point: HRC prices shot from $1,000 per ton in early March 2022 to nearly $1,500 per ton by mid/late April of last year on Russia’s invasion of Ukraine. They fell back to below $1,000 per ton by mid-June as the initial shock of the war passed. That was two nearly $500-per-ton swings within one quarter.

More recently, we saw prices skyrocket from $615 per ton in November to $1,160 per ton in mid-April – a $545-per-ton gain. They have since been inching downward as many of the factors that caused that price surge unwind.

The huge Q1 gains had several causes, chief among them was Mexican steelmaker AHMSA unexpectedly stopping production in December 2022 as power and other basic services were cut due to financial problems. Power has been restored at AHSMA, with production expected to start up in Q3 and ramp up later in the year.

Another reason for the surge in Q1 was low import volumes. Imports might be low now. April is trending well below March. But market participants expect an increase over the summer months, when activity typically slows because of automotive shutdowns, Independence Day, and, well, summer.

As we’ve noted before, import material is said to be available for July/August delivery at roughly $800-850 per ton. That helps to explain why some larger buyers might be seeing very competitive prices now. Also, scrap is down, and it doesn’t help that the banking crisis has saddled the economy with an unpleasant stew of higher interest rates and tighter credit conditions. What’s to stop prices from sliding from ~$1,100 per ton to $800-900 per ton, where imports are, where some larger spot buyers are, and where mills would still be profitable?

For starters, demand is not bad. Also, inventories, while not as low as we thought they might be, aren’t high either. That means there are still holes to be filled, and there should be enough activity to go around. Does that mean that it will be a few weeks or a month before price declines hit smaller spot purchases? How long would it take for those holes to be filled and for some of the macro-economic headwinds we’ve been reading about to meaningfully impact steel demand?

Whatever the timeline, it seems like there is mostly downside risk based on what we know now. But only to a point. We learned last fall that prices in the $600-700s per ton but might not stay there for long. We’ve also learned over the last three years that it takes only one unexpected event – a pandemic, a war, a major furnace outage, a Death Star made of steel – to send HRC prices $400 per ton the other way.

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By Michael Cowden,

Michael Cowden

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