Final Thoughts

Final thoughts

Written by Michael Cowden


It’s been a sloppy start to the year for domestic hot-rolled (HR) coil and ferrous scrap markets.

One of the loudest things to happen in HR this year might be something that didn’t happen at all.

Namely, Nucor didn’t follow competitor Cleveland-Cliffs higher when Cliffs announced a price hike to start 2024. (Or at least the Charlotte, N.C.-based steelmaker hadn’t when this article was filed on Thursday evening.)

Combine that with an unsettling scrap market: Most people expected scrap to be up or sideways. Instead, it looks more likely to be soft sideways/down.

Add a collapse in the futures market (albeit with a rebound on Thursday after what was arguably an oversold market on Wednesday). It’s not a recipe for higher HR prices.

The question now seems to be less when HR prices will peak but instead where and when they will bottom – and how quickly or slowly it might take to reach that bottom.

Some of you might say that the futures market is driven more by financial players and less by the realities of the physical steel market. Even so, I’ve heard that mills aren’t strictly enforcing the $1,100-per-ton, pre-increase HR price. Some sources tell me mills are willing to settle for ~$1,050/ton or so for smaller orders. Others tell me that prices well below $1,000/ton are available from certain mills for buyers able to place thousands of tons.

What’s also struck me in conversations this week is how many of you say you’re not in the spot market, even at deep discounts to prevailing spot prices. You say you’re able to cover your needs under the terms of your contracts. And some of you say you also have a little more inventory than you might like.

Another thing that sticks out: Certain buyers in coastal areas tell me that they’ve lost their appetite for imports. And the shift has been abrupt enough to perhaps take traders by surprise. What happened? It’s not exactly rocket science.

One major EAF sheet mill, for example, has HR available for the week of Feb. 5, according to lead times published earlier this week. Some of its mills had CR available for the week of Feb. 12 – with galvanized available the week of Feb. 19 or Feb. 26.

Imports ordered today might not arrive until April or May. US HRC was at $835/ton for April and $840/ton for May when I last checked CME HRC futures. In other words, can you get cold-rolled delivered upriver to the Midwest at around current spot US HR prices? Yes. Will that still be a good price by the time that material arrives in the spring? That’s not so clear anymore.

I realize this is not uniformly the case. When it comes to cold-rolled and coated products, some of you tell me that demand remains good and prices firm. Others tell me that it’s not so much strong demand as it is production issue at some mills and late deliveries at others.

Whatever the reason, I’m not hearing much of deep discounting in tandem products. But if HR doesn’t perk up, it’s hard to see how CR and coated keep rising – unless we’re seeing a paradigm shift like we saw in plate starting in early 2022.

I also realize that the idea of things loosening up might seem strange to someone on the West Coast grappling with the idling of USS-UPI LLC in Pittsburg, Calif.

Could any downward direction reverse in a hurry? Yes. It’ll be -8F (-22C) in Chicago on Monday, warming to balmy -6F on Tuesday. The area is used to winter. But when temperatures get that cold for a few days, the potential for unplanned outages goes up.

Heck, lows will be below freezing in Houston next week. And as we learned in early 2021 (remember “Snowmageddon“?), freezing temperatures hitting the Gulf Coast can cause a lot of trouble.

Looking out to this spring, perhaps a lack of imports in May or thereabouts will present domestic mills with their next big opportunity to raise prices in dramatic fashion?

I think you can take this much to the bank. The US sheet market is probably in for another volatile year. Take a look at the charts in our latest comparison of domestic and foreign HR prices. No one does volatility like we do here in the US. We soar above prices in the rest of the world, and then plunge below them.

Or, on second thought, perhaps don’t take that to the bank. Your banker might be a little surprised if their last customer was more focused on, say, rebar or plate – bastions of stability compared to sheet.

The good news: US HR is not quite as volatile as Bitcoin. But there are also days when I wonder whether it’s becoming sort of like the Bitcoin of industrial metals.

Michael Cowden

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Final thoughts

I’ve had discussions with some of you lately about where and when sheet prices might bottom. Some of you say that hot-rolled (HR) coil prices won’t fall below $800 per short ton (st). Others tell me that bigger buyers aren’t interested unless they can get something that starts with a six. Obviously a lot depends on whether we're talking 50 tons or 50,000 tons. I've even gotten some guff about how the drop in US prices is happening only because we’re talking about it happening.

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We’ve all heard a lot about mill “discipline” following a wave of consolidation over the last few years. That discipline is often evident when prices are rising, less so when they are falling. I remember hearing earlier this year that mills weren’t going to let hot-rolled (HR) coil prices fall below $1,000 per short ton (st). Then not below $900/st. Now, some of you tell me that HR prices in the mid/high-$800s are the “1-800 price” – widely available to regular spot buyers. So what comes next, and will mills “hold the line” in the $800s?