Final Thoughts

Final thoughts

Written by Michael Cowden

I’ve had questions from some of you lately about how we should think about the spread between hot-rolled (HR) coil prices and those for cold-rolled (CR) and coated product.

Let’s assume that mills are intent on holding the line at least at $800 per short ton (st) for HR. The norm for HR-CR/coated spreads had been about $200 per short ton (st). That would suggest CR and coated base prices should be ~$1,000/st. Good luck finding anyone offering that.

I contacted one service center source today who said that his company, a larger buyer of CR and coated, hadn’t seen anything near $1,000/st. Another source told me that he’d been offered ~$1,150 for galv base and ultimately agreed to ~$1,100 per ton with two of his mill suppliers.

What is the new normal for US HR-CR spreads?

Does that mean the “new normal” HR/CR-coated spread is $300-350/st? A few years ago, I would have said that’s impossible. The market will stabilize around something closer to past norms once. Right?

Also, there might be some reasons why HR/CR-galv spreads are a little wider than usual now. I’m told there is a shortage of quality, domestic CR at present. That could be a combination of production issues at certain mills as well as strong demand in some sectors.

Whatever the issue, trouble sourcing CR appears to have caused lead times at some coaters to kick out longer than they ordinarily might. As far as mid-May, for example, at a mill typically associated with shorter lead times. Maybe these wide spreads will narrow once such issues are resolved.

That said, recall that we saw plate establish a massive premium over coil in early 2022. Two years later, that premium, while narrower than in Q1’22, remains much wider than pre-pandemic norms. So what’s to stop domestic sheet mills from establishing, as plate mills did, a wider premium than in the past?

Perhaps imports. The gap between US and overseas HR prices has nearly closed once applicable duties, tariffs, and importing costs are taken into account. That’s not the case for CR and coated products. Maybe as the foreign/domestic spread narrows when it comes to CR, so too will the gap between domestic HR and CR tags?

March imports looking up

As for steel imports in general, the US was through March 19 licensed to import 1.66 million metric tons (mt) of steel, or 87,616 mt per day, according to government figures. That puts us on pace to import another 1.05 million mt by the end of March, for a total of 2.7 million mt. That would mark the highest single month for steel imports since 2.81 million mt in April 2022 – nearly two years ago.

If we look just at flat-rolled, it’s a similar story. The US was licensed to import 646,037 mt of steel through March 19, or 34,002 mt per day. If that pace continued, it would equate to an additional 408,023 mt. That would result in a March total of 1.05 million mt of flat-rolled steel. That would mark the highest number for flat-rolled imports since 1.13 million mt in March 2022.

Granted, the final numbers could be lower than that. License data is lumpy by nature, especially since Section 232 quotas were rolled out in 2018. If South Korea, for example, has already reached its quota limit for Q1 HR imports, no additional tons of Korean HR will arrive later this month.

Supply chain snarls strike back

There are, however, reasons why import numbers might continue to go up. Why? Some of you have told me that material you ordered for Q1 delivery to US ports is running late. That’s in large part because of the supply chain snarls. Namely, the drought on the Panama Canal and fighting on the Red Sea.

The result: Material ordered last year that was supposed to arrive in January or February might only be hitting domestic ports now. And I’m told we could see more of the same in April. In short, there is good reason to think the downward trend we saw in imports from January to February might not continue into March.

That’s not to say that US prices won’t keep going up. The US economy continues to truck along despite economic troubles in Europe and in China. Service center inventories have moved lower. And we’ve seen early indications that service centers, some of which bought heavily over the last couple of weeks, are increasing prices along with domestic mills. (See slide 38 here.) Still, it’s worth keeping a close eye on imports as you assess the supply-demand balance moving forward.

SMU Community Chat

Speaking of supply chain issues, don’t miss our next Community Chat on Wednesday, April 3, at 11 am ET with Anton Posner, CEO of Mercury Resources. We’ll discuss the Panama Canal, the Red Sea, and all things logistics. You can register here.

Also, a big shoutout to Barry Zekelman, executive chairman and CEO of Zekelman Industries, for joining us for a Community Chat earlier this week. It was a good conversation. If you missed it, you can catch a recording here.

Finally, thanks to all of you for your continued support of Steel Market Update!

Michael Cowden

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