Final Thoughts

Final thoughts

Written by Michael Cowden

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?

CME HR futures indicate that prices could fall into the high $700s/low $800s. Futures of course don’t predict the future. But I’d say they’re somewhere between magic and the “toilet paper” moniker the Cleveland-Cliffs CEO Lourenco Goncalves memorably gave them last month. (Futures did correctly indicate, it turned out, that HR prices would fall below $1,000/st.)

Another opinion on the future comes from our steel market surveys. Our most recent survey indicates that people expect prices to stay lower for longer than they had just a month ago. Nearly 40% of respondents now predict that HR prices will dip into the low $800s or high $700s. And more than half now think that prices won’t bottom until Q2.

Again, that aligns with what we’re seeing on the CME. It also aligns with chatter we’ve heard that East Asian HR is available in the $700s/st to the Gulf Coast. Could we see all of this change if someone announced a blast furnace idling? Yes. But, so far, we haven’t heard of anything like that coming down the pike.

Also, since the initial panic over the war in Ukraine subsided, we’ve seen HR prices fluctuate between roughly $1,100/st and $600/st. We don’t stay in the $600s very long. Nor do we stay near or above $1,100/st for long. Is that a good way to think of peaks and valleys going forward?

Let me know what you think.

Galv, imports and new capacity

I tend to focus on domestic HR. Let’s turn to foreign cold rolled (CR) and coated for a moment. Market participants have told me that they think offers cold-rolled and coated product from Southeast Asia could fall into the $900s/st.

That makes some intuitive sense. When US prices get out of whack with world prices, you’ll sometimes see foreign CR/coated offers roughly on par with domestic spot pricing for HR. What surprised me a little was that some of you told me that European CR/coated offers could drop into the $900s as well.

But that makes some sense too. European steelmakers restarted blast furnaces earlier this year. The EU remains under pressure from imports. And if the US market is around $1,200 for CR/coated products, it will be an attractive destination for foreign tandem products – whether from Asia, Europe, or elsewhere.

That doesn’t mean people will jump on those offers, even if they might seem competitive now. Take SE Asian CR/galv, for example. It might not arrive until late summer. And the risks of ordering it are therefore too high, especially with domestic lead times falling along with domestic prices.

Here’s another thing to keep tabs on: There is a lot of coating capacity coming into the US market over the next few months. SDI will be starting up new coating capacity at its mill in Terre Haute, Ind., as well as at its mill Sinton, Texas. U.S. Steel’s Big River Steel in Osceola, Ark., should be bringing new coating capacity into the market too.

That’s not a bad thing. One of the express justifications for building Sinton was to serve Gulf Coast and West Coast markets that had largely relied on imports. And if competitive US prices are available in a matter of weeks from new lines, that could be a good deal for both domestic mills and domestic manufacturers.

SMU Community Chat

Thanks to those of you who signed up for the Community Chat with Mercury Resources CEO Anton Posner. Due to some last-minute scheduling conflicts, we won’t be able to hold that webinar on Wednesday as planned.

Our next Community Chat will instead be on March 6 with Worthington Steel CEO Geoff Gilmore. We’ll catch up with Posner on April 3. You can see all of our upcoming webinars and register here.

Michael Cowden

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