Final Thoughts

Final Thoughts

Written by Michael Cowden

A much-anticipated bleeding in US flat-rolled steel prices has begun. On the hot-rolled coil side, we’ve been losing approximately $20-25 per ton per week since mid-April.

That’s a boo-boo. Steel might need a Band-Aid. Does it become a wound that needs a tourniquet?

gearsI ask that question because the high end of our HRC price range is $1,140 per ton this week, down only $10 per from a week ago. The low end, in contrast, is $1,000 per ton – down $60 per ton week over week.

What explains that? On the one hand, it looks like mills are trying to keep ~$1,000-1,150 per ton out there for smaller spot buyers. On the other hand, and as I’ve noted in recent columns, some mills are offering prices in the $900s per ton or lower to attract larger buyers – maybe in the $800s per ton for some of the very largest.

It’s a striking change to see mills that had been offering $1,200-1,300 per ton just a month ago now hundreds of dollars below that figure. Has the mantra of value over volume changed on a dime to volume over value? How do small/mid-sized service centers compete if they’ve paid $300-400 per ton more for their steel than some of their larger competitors?

Those issues aside, there are some logical reasons for why a big shift in pricing is occurring now. The typically seasonal automotive shutdowns are coming up. That’s a chunk of demand missing from the market. While demand more generally speaking has been resilient in face gloomy macroeconomic headlines, few people tell us that they’re seeing it increase meaningfully.

Also, mills are getting past their springtime outages. US Steel has restarted two previously idled furnaces. New capacity – think SDI Sinton, Nucor Gallatin, and North Star BlueScope – continues to ramp up. (AHMSA might be restarting too. I’ll believe it when I see it.) In other words, supply is increasing meaningfully.

In addition, lower-priced imports are on the way or already arriving. We’ve heard, for example, that a Latin American producer might have HR stock available at ~$950 per ton. We’ve also heard that an East Asian producer might be offering HR just a little below $800 per ton for late summer/early fall delivery.

Let’s remember, too, that North American mills are making money a lot of money even at the lower end of our range. Do you run at 70% to try to slow the fall and let your competitors run at 80% while making money all along the way?

Some of you have told me you think that HR bottoms out at $800 per ton. I don’t do forecasts. But given where import prices are and where domestic prices are for very large customers, I can see a case for that. Or consider cost-plus. Talking round numbers, let’s say scrap falls back to $500 per gross ton. That’s about $445 per short ton. Add $300-350 per short ton for conversion and profit, and you’re already in that ~$800/ton ballpark.

Does that mean you should bake in a $800/ton bottom? Or course not. Sheet inventories were 2.29 months’ supply in March, lower than the 2.62 months’ supply we saw in April when prices fell below $700 per ton. I’m curious to see what April data will be when we release it next week. I wouldn’t be shocked if inventories were lower again. Point is, there is not a ton of slack in the system, which means any unexpected production issues could send things the other way quickly.

Boy Scouts Metals Industry Dinner

I’ll be at the Boy Scouts of America Metals Industry Dinner on Thursday along with my colleague David Schollaert. If you’re one of the 950+ people who will be there, stop by and say hi!

By Michael Cowden,

Michael Cowden

Read more from Michael Cowden

Latest in Final Thoughts