Final Thoughts: Can HR crack $1,200 and other trends to watch this summer

Out to buy a few thousand tons? You’ll be paying the same price, or more, assuming you can get the volume you want anywhere on a spot basis.

In other words, volume, which is usually a big positive for buyers in price negotiations, has arguably become a net negative.

A better test of prices might be the cold-rolled and coated markets. On the HR side, domestic mills are probably being less aggressive than they could be given tight supplies and solid demand.

Coated gets its groove back

On the cold rolled (CR) and coated side, however, they’re not limited to gains of $5-10/st from one week to the next. And in CR/coated space, we’re seeing more concreted efforts to restore spreads between base prices for HR and those for tandem products.

SMU’s price for HR stands at $1,095/st on average this week, up $5/st from last week. Our galvanized base price clocked in at $1,260/st on average, up $20/st from a week ago. And that’s hardly the first week lately that we’ve seen galv price gains exceeding HR gains.

The result: The spread between HR base and galv base is at $165/st. Rewind to early March and the spread was as low as $105/st. HR prices have since increased $90/st. Galv base prices have gained $150/st over the same period.

Open question here: What’s to stop mills form pushing the spread to $200/st?

Next stop, HR at $1,200?

Along similar lines, now that US HR prices are (more or less) at $1,100/st, I’ve been getting questions about whether they can go above $1,200/st. One school of thought is they can’t. Because if they do, it’ll open the door to imports, and then US prices will stall and fall.

That’s possible. Imports have been ticking upward. The US imported approximately 1.5 million metric tons (mt) of steel in March, 1.6 million mt in April, and 1.8 million mt in April – the last month for which complete figures are available. If the trend continues, we could be over 2 million mt per month before summer is out.

Whether that happens might depend a lot on what people think the market will do. Let’s say you think domestic prices will continue to rise and lead times will remain long. Then imports, even if they’re not exactly cheap now, might make sense. If you think we’re near a peak, or at least a summer pause, maybe you’re leery of buying offshore tons.

Imports aside, it’s also worth noting that crude steel production has been tracking higher as well. If both domestic steel production and imports trend higher, at some point supply should catch up to demand – and prices should level off.

When exactly that happens is tricky to say. In 2021, the last time we had a rally of this duration, supply finally caught up to demand in September – about 15 weeks from now. Let’s say prices rise roughly $7.5/st per week between now and then. (That’s based on Nucor going up $5/st or $10/st most weeks.) That would get you to just over $1,200/st around Labor Day.

That said, I remember similar arguments at the beginning of the year about how HR could never go above $1,000/st. And yet here we are about to cross $1,100. Low and slow is gospel when it comes to BBQ. And it’s turned out to be a pretty good pricing strategy for US mills too.

USW contract negotiations

That’s not to say we couldn’t have more surprises along the way. Labor contracts between the United Steelworkers (USW) union and U.S. Steel as well as between the USW and Cleveland-Cliffs expire on Sept. 1. That’s practically tomorrow given current extended lead times.

I’m assuming a strike or lockout could send prices soaring well above $1,200/st. But I’m wary of handicapping a work stoppage.

The USW has a new president. She’s no doubt keen to prove she can get a good deal for her members. That said, I have trouble seeing Nippon Steel picking a fight with the USW unless one really can’t be avoided. The optics wouldn’t be good ahead of midterm elections. And politics (as we learned last year) can play a big role when it comes the Trump administration, Nippon Steel, and its ownership of U.S. Steel.

As for Cliffs, a strike or lockout would be costly – which is probably something it would want to avoid after a string of difficult quarters. My guess is a more pressing matter might be rectifying fixed-priced contracts negotiated when sheet prices were significantly lower than they are now.

It’s also worth remembering that once one steelmaker reaches a deal with the USW, it’s challenging for the other to hold out. My best guess is that it comes down to the wire, perhaps deadlines are extended, and then there’s a deal.

One thing that’s notable in the meantime is how almost cordial the USW has been toward U.S. Steel in messages to its members. In the prior round of negotiations, back in 2022, let’s just say there was more mudslinging.

Other news to watch

Another wildcard is the Iran war. If it drags on, inflation could be a drag on the broader economy and on steel too. If a cease fire holds, we could see an already hot market really boom.

Here are a few other big topics we’ll be keeping tabs on this summer.

US-Mexico-Canada Agreement (USMCA) talks are underway. Could we see tariffs reduced as the three sides negotiate toward a deal? Maybe US tariffs on Canada and Mexico go from 50% to 25%? Or, given recent comments by Commerce Secretary Howard Lutnick, maybe it’s a stretch to suggest a new deal is possible.

South Korean steelmaker POSCO and Cleveland-Cliffs presumably remain in talks about what Cliffs has said could be a “transformative” partnership. (Cliffs has since said it is in no hurry to ink an agreement.) POSCO said it will provide an update by the end of September. Could we get new developments sooner than that?

This year got off to a bang with Steel Dynamics Inc.’s (SDI’s) attempt to acquire the North American operations of BlueScope Steel. The Australian steelmaker said it wanted more money than SDI felt was a fair price. Do the two sides get back to the negotiating table? Might another bidder emerge? I’m hoping we don’t have to wait until the kids are back to school to find out.

SMU Steel Summit

Here’s something else to put on your summer to-do list: Book your travel for SMU Steel Summit!

We’ll gather on Aug. 24-26 at the Georgia International Convention Center in Atlanta. We’re on track for another great turnout.

You can see the companies that will be attending here. And if you haven’t registered yet, you can find out more about the event and lock in your spot here.