There has been almost an assumption that US mills would get the $950-1,000 per ton ($47.50-50 per cwt) they were seeking on HR base and $1,150-2,000 per ton ($57.50-60 per cwt) for cold-rolled and coated base.
Recall that Cliffs initially announced an increase and said it was seeking $1,000 per minimum for hot-rolled coil. Nucor subsequently followed with an increase but set a lower target price for HR – $950 per ton.
That’s not usually how these things go. Following mills typically match the number announced by the mill that initiated the price hike. Sometimes they go even higher.
Some of you who’ve been around for a while, and who’ve been involved with long products, might recall times when Gerdau, for example, led an increase on rebar – only to see Nucor go up by a lesser amount. But you don’t often see that on the sheet side.
Was Nucor starting from a lower base and thus had a lower target price? Or was the EAF steelmaker’s $950 per ton target an early indication of some domestic producers trying to reduce the throttle on price increases on concerns they could attract import competition? I’m not sure. But let’s consider a few things.
Was the Fall Sheet Price Spike a Restock Pulled Forward?
Let’s assume that the fall price spike we’ve seen tracks roughly with what we saw in late Q4’22 and Q1’23. Namely, a restock amid stable demand, low imports, and with domestic supplies squeezed because of outages, planned or otherwise.
This little “thought experiment” started with me thinking back to where we were a year ago. Recall that US prices hit a 2022 low of $615 per ton on average on Nov. 22, 2022 – just before Thanksgiving. And the low end of our range then fell into the $500s per ton. Prices peaked at $1,160 per ton on April 11, 2023 – or 20 weeks later, according to SMU’s interactive pricing tool.
The most recent low we recorded was $645 per ton on Sept. 26, 2023. Add 20 weeks, and that suggests a peak in mid-February 2024. Many of you, anecdotally and according to our survey results, think that’s when prices should peak for this cycle too.
There is some logic there. Imports are a lot cheaper than US material and available for March/April delivery – which is where domestic lead times might be in mid-February.
But while history rhymes, it doesn’t often repeat. And I’m hearing from more of you – not a majority but perhaps a significant minority – the prices could peak sooner this time around. In January, or perhaps even as soon as next month.
The Case for an Earlier Peak
The thinking goes a little like this. Big buyers who bought in the $500s per ton (think people capable of placing 10,000 tons or more) when prices were low in September, and maybe again in the $700s per ton more recently, don’t need to go back into the spot market except to fill in holes. They’ve restocked. If that material isn’t in inventory yet, it’s on the way.
Also, domestic production, while low by historic standards, has been running above 2022 levels lately. Meanwhile, new domestic capacity continues to ramp up. No, it’s not a tsunami. But even new mills that had struggled to startup are producing more from one month to the next. (If you want a complete tally, check out SMU’s new capacity table.)
Let’s remember, too, that the price spike we saw in Q1 of this year was partly driven by a lack of imports. I think it’s reasonable to assume that might not be the case in Q1’24.
Imports Already on the Rise?
Import license data compiled by the US Commerce Department was last updated on Nov. 12. Even with less than two weeks of data for November, some countries were already licensed to ship more flat-rolled steel to the US than they had in all of October.
South Korea is licensed to ship at least 57,170 metric tons of flat-rolled steel to the US through the first 12 days of November, up from 54,512 metric tons in October. It’s a similar story with Taiwan – 23,344 metric tons in the first two weeks of November, above the 19,185 metric tons shipped in all of October. Ditto Sweden – 16,385 metric tons through Nov. 12, up from 11,559 metric tons in October.
And that’s based just on the data we have so far. Some of you tell me that European countries subject to a Section 232 tariff-rate quota (TRQ), or soft quota, will max out their quota tonnages given the wide gap between prices there and prices in the US.
One source in the international steel trade said the impact of EU exports to the US was already pronounced enough to lift European prices. ArcelorMittal, he said, is trying to get 700 euros per metric ton for hot-rolled coil (or roughly $695 per short ton). The prospects of that happening had been a little bleak. But the prospect of US HRC at $1,000 per ton has made it less bleak.
Others have told me that a variety of nations – in the Middle East, Southeast Asia, and perhaps Turkey – should be able to offer competitive import prices to North America, even once AD/CVDs and Section 232 are factored in, should US prices remain high.
Keeping Tabs on Slabs
Some of you have also suggested keeping an eye on slab imports. The big tonnage is largely unchanged to date in 2023 – with Brazil, which is subject to a Section 232 quota rather than a 25% tariff – accounting for the bulk of the volume. Behind it are Canada and Mexico, no surprise given interlinked North American supply chains.
Russian slabs have become a non-factor in the US market since the invasion of Ukraine. But volumes from other countries have trended higher to offset some of those lost tons. We even saw a boat come in from China (approximately 50,000 metric tons) in June, per Commerce Department figures.
Yes, finished steel from China is subject to substantial AD/CVD duties, which is why few tons of finished steel arrive in the US anymore. But Chinese slabs, while subject to a Section 232 tariff of 25%, don’t have the AD/CVD barrier that finished product does. The tons in June appear to be a one-off. Will that remain the case?
Are Volume Deals Back?
I’ve heard from some of you that US mills won’t entertain any prices below $900 per ton. Not even from big buyers who might typically get lower prices for orders of 10,000 tons or more.
But I’ve also heard from others who say such deals have recently crept back into the picture. Are they pure spot deals? Or should they not be considered as such because of the volumes involved, because of special rebates, etc.?
Whatever your answer to that, there may have been some recent transactions in the $800s per ton, I’m told. If those are happening as more than a one-off, I’d be a little surprised. It’s not something you’d typically see from mills focused on holding the line on HR at $950-1,000 per ton.
So let’s go back to the subject of timelines and price peaks. Cliffs on April 3 announced a $100 per ton sheet price hike and that it was seeking $1,300 per ton for HRC, according to SMU’s price increase calendar. That number never really gained traction in the market. What’s the number that’s pushing the envelope just a little too far this time?
Tampa Steel Conference – Jan. 28-30, 2024
The agenda for the Tampa Steel Conference, which SMU does together with Port Tampa Bay (PTB), is nearly complete. Check it out here.
Michael CowdenRead more from Michael Cowden
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