Final Thoughts

Final thoughts

Written by Michael Cowden

What a difference a month makes. There are a few full bulls left in the room, but their numbers are dwindling.

We’ll release results of our full steel market survey tomorrow afternoon. I took a sneak peak at the data on Thursday. And more people than I expected think that US hot-rolled (HR) coil prices will be in the $700s per short ton (st) two months from now. Vanishingly few think prices will be above $1,000/st in mid-April.

Let’s rewind to our first survey of the year. In the first week of January, nearly 50% of respondents predicted that HR prices in two months would be $1,100/st or higher. That’s more like a cold-rolled or coated base price now.

The prevailing opinion seems to be that the next few weeks could be a long slog for domestic mills. And that sheet pricing could get messy before the market finds a bottom. Just how messy depends on who you ask.

One service center executive told me his company had been offered HR in the low $800s/st for a minimum order of 10,000 tons. He said it had declined that offer. Why? “Everyone is trying to wait as long as they can. Because every day they wait, they can get it cheaper,” he said.

I asked him what price might get him to buy. He declined to say. But he offered this: “People are trying to throw out stupid numbers at mills.”

So just how stupid? There were rumors around the market recently that a large buyer had placed a big HR order with an integrated mill for $700/st. But sources I spoke with said that it was for secondary or excess prime material.

While that might be so, I also heard that some larger buyers were nonetheless trying to get domestic mills to bite at even lower numbers – in the mid/high $600s per ton. I was told that US mills had to date told those buyers to “pound sand.” In other words, the high-stakes game of chicken I noted in a prior Final thoughts before continues.

So why does there seem to be an assumption that prices will crash into the $700s per ton? For starters, my understanding is that offers for Korean HR – high-quality material – for delivery to the Gulf Coast, remain competitive. It’s no secret that certain domestic mills don’t like to lose orders to imports. Or that some new capacity was built with the explicit goal of taking market share away from imports.

And then there is the fact that service center inventories have crept up. US service centers carried 60.3 shipping days of supply at the end of January, according to figures just released by SMU. (If you’re a premium member, you received this data by email on Thursday afternoon.)

That’s the highest figure we’ve seen for a January since we started collecting such data in 2019. It’s also well above the 52.9 days of supply we saw in January 2023. (Our full archive of service center inventory data is here.)

Figures like that help to explain why this year started off pretty much the opposite of last year. HR prices were on the cusp of shooting over $1,000/st a year ago after starting 2023 just below $700/st, according to SMU’s interactive pricing tool. With inventories leaner, and AHMSA unexpectedly out of the market, domestic mills announced price hikes almost every week in February 2023. (Our price increase calendar captures the frenetic pace.)

This year, mills are lowering prices at a rapid clip. Of course, not officially. Plate mills might announce price decreases. Sheet mills, never!

In fact, service center inventory levels now are closer to the 56.1 days of supply we recorded in January 2022. You might recall that the sheet market stumbled out of the gate in 2022 just like it has this year. The difference: Russia’s invasion of Ukraine in February 2022 sent steel prices soaring higher.

I’m still in the camp that thinks we could see a bump in prices as larger buyers – tubers, big service centers, and distributors – step back into the market and restock, something they often do at the same time. But with inventories not exactly lean, I think it’s safe to say that’s it’s probably not happening this week or next.

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Michael Cowden

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