Final thoughts

I’m writing this on a Sunday afternoon. And you might be reading this on Monday morning. So we’ll know the answer soon enough.

We’ve had some fun guessing what the Nucor HR price (also known as its consumer spot price, or CSP) will be in any given week. And we’ve speculated whether it’s mostly algorithmic pricing or perhaps driven in part by rivalries between competing mills or even personalities.

That’s fun for water-cooler gossip. But I think a few important things are worth remembering.

The big picture: Can one mill tame volatility?

Nucor said when it introduced the weekly HR price in April that the goal was, basically, to reduce volatility in the US HR market. Nucor’s number initially drove volatility when it posted $830/st, $70/st lower than Cliffs’ $900/st. (You can follow along with SMU’s price announcement calendar.)

The move sent a market that was trying to gain momentum into a tailspin instead. (Whether that momentum was really justified is a separate question.) HR prices then drifted lower throughout the second quarter and into July. Yet even as price fell, data from the American Iron and Steel Institute (AISI) indicated that production was still rising.

I can see why some people concluded that domestic mills lacked discipline. They didn’t cut production even as big-volume discounts and CRU-minus contracts fell close to or even to breakeven. That wasn’t supposed to happen (again) in a market that has seen significant consolidation since 2020.

What will be interesting to see now is how Nucor manages its weekly price (and how other mills react to it) in an upward market. Because this is the first time we’ve seen an upswing with a weekly HR price in place.

A pre-CSP price spike

Let’s consider the last big upcycle, which happened the fall of 2023. It was driven largely by the dynamics of the UAW strike against Ford, GM, and Stellantis.

Cliffs said it would seek $750/st for HR on Sept. 25. That was $90/st more than SMU’s spot price of $660/st for HR at time. As often happens immediately after a mill price increase, our spot price dropped a little (to $645/st on average) the following week. The decrease probably reflected last-minute deals at the “old price.” The low end of our range dropped, for example, lower to $600/st, according to our pricing archives.

But then prices shot up from there. On Dec. 6, Cliffs said it would seeking $1,100/st for HR. SMU’s price never got quite that high. But we ended 2023 at $1,040/st – or $440/st higher than the low end of our range in late Sept.

I think the question Nucor is trying to address is this: Should that kind of rapid increase in spot prices be considered a success?

Will a post-CSP gain be different?

If we go back to last fall/winter, how many tons were booked at approximately $600-650/st, the low point of the cycle? And how many were booked at ~$1,000/st or more, the high end of the cycle? My guess: Buyers placed a lot more with mills at the lower end of that range. And Nucor is trying to prevent that from happening again.

Let’s talk in round numbers. Some of you have said, for example, that you tried to place 1,000 tons with Nucor. But the steelmaker asked that you split that order up into four orders of 250 tons, placed once a week over a month. (I’m using 1,000 tons here as a theoretical example. I’ve heard similar stories from folks looking to place anywhere from 800 tons to 8,000 tons.) Maybe you decided to go along with that. Maybe you decided to go with another mill that was willing to let you buy 1,000 tons at once.

So, again, the goal with the weekly HR price is probably to get more tons placed more evenly across the cycle. Or at least to moderate the feast/famine that characterizes steel buying and the boom/bust nature of HR prices. Whether that effort will be successful remains to be seen.

Supply tightening?

Weekly prices aside, there are some signs that mills are being more disciplined lately. Raw steel output fell again last week, according to AISI figures. And we learned from U.S. Steel’s earnings call that the first coil from BRS2 won’t be made until Q4 – a little later than rumors of a first coil shortly after Labor Day.

Also, we’ve heard from some of you that US mills have been able to export a little more to Mexico in recent months with AHMSA still down and with labor issues at ArcelorMittal there. We have some evidence of that. The US exported approximately 359,000 metric tons (mt) to Mexico in June, up from roughly 341,000 mt in May, according to US government figures. July data isn’t available yet. We’ll be curious to see whether the trend continued when it is released.

And, as Lewis Leibowitz notes in his column, Commerce hitting Vietnam with “non-market economy” (NME) status is significant. It means that any trade case brought against imports from Vietnam could result in sharply higher duties – potentially high enough to effectively stop, or severely limit, Vietnam’s participation in the US steel market.

The takeaway: Let’s say domestic supply might be contracting at the margins. Does that give US mills a stronger hand to enforce higher prices? Or does uncertainty around the economy and the elections offset that?

By the way

By the way, we’re curious to see what happens with AHMSA in the days and weeks ahead. Will it be bought for pennies on the dollar out of bankruptcy, liquidated, or perhaps sold to a group of investors relatively new to the scene there?

Also, it’s not just the US that is looking to restrict imports from Vietnam. As some of you have noted to me, the European Union on Aug. 8 launched a trade case targeting HR not only from Vietnam but also from Egypt, India, and Japan.

Will that have any knock-on effects in the US market? As always, feel free to share your thoughts with us at info@steelmarketupdate.com.

SMU Steel Summit

Wow, times flies. There are just two weeks to go until Steel Summit kicks off on Aug. 26 at the Georgia International Convention Center (GICC) in Atlanta.

Nearly 1,350 people have registered. Last year’s record attendance was a little over 1,400. I honestly didn’t think we’d come close to beating that number this year. But we might.

If you haven’t made plans to attend, you can see the agenda here, a list of companies attending here, and registration information here. Help us make this year another record one for Summit!

Also, a huge ‘thank you’ from all of us at SMU to those who have already registered, who read our newsletters, and who participate in our surveys. You are what makes our success possible.