Final Thoughts

Recall, those imports were ordered months ago, when domestic prices were much higher than those in the rest of the world. Also, long US lead times in Q1 reduced the risk of ordering imports.

We’ve more recently heard that HRC is being offered from Asian mills to the Houston area loaded truck at approximately $800 per ton, maybe a little lower, for August/September ship. We’re told that domestic mills (at least for very large buyers) are competitive with those figures – especially in areas traditionally exposed to more import competition.

That means we’re still dealing with a two- or three-tier market. Let’s use some rough figures to describe it. I’m using hot-rolled coil prices here as an example.

Let’s say you’re buying 50-300 tons, a few truckloads to a few railcars. You might be seeing prices over $1,000 per ton, the high end of our range. Let’s say you’re buying 1,500 tons or more, a barge load. You might be seeing prices in the $900s per ton, the low end of our range.

Let’s say you’re someone buying tens of thousands of tons, not what is typically considered a repeatable spot buy. Domestic mills might be offering you in the $800s per ton or lower – pricing not only competitive with imports but also competitive enough with other US mills to really catch your eye.

In a downward market, we’ll see prices gravitate toward that lower end. That’s why I have a hard time seeing, based on what we know now, how sheet prices don’t continue to decline into the summer and perhaps until lead times get into the fall.

What might reverse the downward trend? It’s possible the increase in imports over the summer months could be short lived – maybe only 6-8 weeks.

Why? Because with domestic prices falling fast and lead times coming in, I don’t think we’ll see nearly as many people ordering imports now as we did in Q1. That could set the stage for tighter supplies in the fall.

Also, we’ve seen more service centers cutting prices and trying to reduce inventory in response to falling prices at the mill level. Some of you have told us you’re willing to accept a few holes if need be. OK. … But what happens if prices get so low, as they did last fall, that we start to see furnace idlings?

Remember what caused prices to pop in the fourth quarter and into Q1? Furnaces were idled, imports dried up, and it took just one unexpected event to send prices higher.

AHMSA went out. US exports to Mexico increased to help bridge that gap. And new capacity was slow to ramp up. That resulted in an anticipated supply glut turning into shortage – one that started in the South/Southwest but quickly spread north. Are we just one unplanned furnace outage away from something similar?

I’m not suggesting that there will be a sustained price rally. That would depend on demanding improving materially. It’s hard to see that happening in an environment of higher interest rates and tighter credit. (I know that some of you are continuing to meet or beat forecast. I also know that some of your targets are a little lower than they were a year ago.)

Also, there is a chance any new price spike might not be as high as the ones we saw in early 2022 (Ukraine war) and in early 2023 (AHSMA, low imports, increased exports).

New capacity continues to ramp up – however haltingly in some cases. That new capacity was designed not only to be modern and efficient but also to make money for shareholders. It’s hard to see it ratcheting back because of prices that, while less profitable than they might have been in Q1, are still very, very profitable compared to the standards of the last 10-15 years.

SMU Community Chats

Thanks to those of you who attended our Community Chat last week with Flack Global Metals and Flack Metal Bank founder and CEO Jeremy Flack.

A recording of the event is available on our website. We’ve also got a solid schedule of webinars coming up in June and July. It’s not too early to register.

PS – The live webinars are free. Recordings are available only to SMU members.

By Michael Cowden, michael@steelmarketupdate.com