In October, Nucor said it was considering the Pacific Northwest for a new rebar micro mill.

Potential locations for the new mill are still being evaluated. Construction of the mill will take two years to complete, the company said.

Nucor currently operates 15 bar mills in the US, producing an array of bar products, including hot-rolled bar, rounds, light shapes, structural angles, channels, wire rod, and highway products. At the end of 2023, Nucor had approximately 9.6 million st of annual bar-making capacity.

The company has two rebar micro mills in Sedalia, Mo., and Frostproof, Fla., with a third currently under construction in Lexington, N.C.

“This new rebar micro mill in the Pacific Northwest will help Nucor maintain its leadership in the steel bar market and further execute our strategy to better serve our customers west of the Rocky Mountains, which also includes the addition of a melt shop at our Arizona bar mill,” commented Nucor’s chair, president, and CEO Leon Topalian in a statement on Wednesday.

He noted that rebar produced at Nucor’s micro mills is made from nearly 100% recycled scrap.

Nucor expects strong demand in the domestic rebar market to continue because of increasing government infrastructure investments.

Latin American steelmaker Ternium posted a strong uptick in earnings in its fourth quarter, and sees increasing steel demand growth in Mexico.

Ternium reported net income of $554 million in Q4’23 on Tuesday, up a whopping 839% over the same period last year on sales that increased 39.1% to $4.93 billion.  

The steelmaker cited, among other things, strong steel shipments in Mexico “in a seasonally weaker period, aided by continued growth of commercial customer demand.”

“Ternium’s shipments in the country grew by 22% during the year, representing a significant market share gain supported by the ramp-up of its new hot rolling mill in Pesquería,” the company said in a statement.

Steel shipments totaled 8.36 million metric tons (mt) for Mexico in 2023, up from 6.84 million mt in 2022. Meanwhile, Ternium’s Mexican steel shipments totaled 2.12 million mt in Q4’23, down 1% from the previous quarter.

Pesquería updates and outlook

Ternium said it expects to begin deploying its downstream project in Pesquería during the second half of 2024, with the startup of a 550,000-mt-per-year new pickling mill and the first lines in its new service center.

“This should support an increase in volumes in this market during the second half of this year,” Ternium said.

Ternium announced in June 2023 its plans to build a $3.2-billion EAF slab mill in Pesquería, adjacent to the $1-billion downstream facility currently under construction there.

The company commented that “healthy industrial activity in Mexico,” along with the nearshoring of manufacturing trend, “are contributing to steel demand growth in the region.”

“On the other hand, apparent steel demand in the domestic commercial market is showing short-term weakness due to a destocking tied to the recent downturn in steel spot prices in North America,” Ternium said.

Usiminas

In Brazil, Ternium said it began fully consolidating Usiminas results in July 2023, a period in which Usiminas “successfully relined its main blast furnace.”

Ternium, along with Luxembourg-headquartered Tenaris, had announced their increased stake in Brazilian steelmaker Usinas Siderúrgicas de Minas Gerais S.A. (Usiminas) last July.

“In 2024, Usiminas will be focused on increasing its industrial system productivity,” Ternium said.

The company added that for Usiminas in Q1 it “anticipates a sequential improvement in the profitability of its steel segment.”

However, Ternium also anticipates “a revenue decline in its (Usiminas’) mining segment due to the temporary halt of one of its ore processing plants and seasonal rains at the beginning of the year.”

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.

We haven’t recorded such a steep week-over-week (w/w) decline since June 2022, when prices rapidly retreated following a spike earlier in the year stemming from Russia’s invasion of Ukraine.

There is no obvious external shock that sparked the decline this time. Instead, it appears to be a collection of smaller issues – higher service center inventories, weaker-than-expected scrap prices, increased import competition, and a normalization of US prices with world prices.

Cold-rolled (CR) and coated prices held up somewhat better but still fell. SMU’s CR price stands at $1,185/st on average, down $10/st from a week ago. Galvanized base prices are at $1,180/st, down $25/st from last week. And Galvalume prices are at $1,215/st, down $15/st from a week ago.

The result: Spreads between HR and CR/coated base prices are more than $300/st on average – much higher than the $200/st spread the market has become accustomed to in recent years. Several sources said they expect that spread to narrow as prices for tandem products follow HR lower on a lag.

Plate, meanwhile, stands at $1,320/st on average, down $10/st from last week.

SMU’s price momentum indicators for all sheet and plate products continue to point lower.

Hot-rolled coil

The SMU price range is $820–930/st, with an average of $875/st FOB mill, east of the Rockies. The bottom end of our range was down $80 per st vs. one week ago, while the top end of our range was down $50/st w/w. Our overall average is $65/st lower from last week. Our price momentum indicator for HRC remains lower, meaning SMU expects prices will move lower over the next 30 days.

Hot rolled lead times: 3–8 weeks

Cold-rolled coil

The SMU price range is $1,120–1,250/st, with an average of $1,185/st FOB mill, east of the Rockies. The lower end of our range was flat vs. the prior week, while the top end of our range was down $20/st. Our overall average is down $10/st from last week. Our price momentum indicator for CRC remains lower, meaning SMU expects prices will move lower over the next 30 days.

Cold rolled lead times: 6–9 weeks

Galvanized coil

The SMU price range is $1,110–1,250/st, with an average of $1,180/st FOB mill, east of the Rockies. The lower end of our range was down $30/st vs. the prior week, while the top end of our range was $20/st lower w/w. Our overall average is $25/st lower than the week prior. Our price momentum indicator for galvanized remains lower, meaning SMU expects prices will move lower over the next 30 days.

Galvanized .060” G90 benchmark: SMU price range is $1,207–1,347/st with an average of $1,277/st FOB mill, east of the Rockies.

Galvanized lead times: 5–10 weeks

Galvalume coil

The SMU price range is $1,160–1,270/st, with an average of $1,215/st FOB mill, east of the Rockies. The lower end of our range was flat w/w, while the top end of our range was down 30/st from the prior week. Our overall average was down $15/st when compared to the previous week. Our price momentum indicator for Galvalume remains lower, meaning SMU expects prices will move lower over the next 30 days.

Galvalume .0142” AZ50, grade 80 benchmark: SMU price range is $1,454–1,564/st with an average of $1,509/st FOB mill, east of the Rockies.

Galvalume lead times: 7–8 weeks

Plate

The SMU price range is $1,260–1,380/st, with an average of $1,320/st FOB mill. The lower end of our range was down $20/st vs. the week prior, while the top end of our range was flat w/w. Our overall average is down $10/st vs. one week ago. Our price momentum indicator for plate remains lower, meaning SMU expects prices will move lower over the next 30 days.

Plate lead times: 4-7 weeks

SMU note: Above is a graphic showing our hot rolled, cold rolled, galvanized, Galvalume, and plate price history. This data is also available here on our website with our interactive pricing tool. If you need help navigating the website or need to know your login information, contact us at info@steelmarketupdate.com.

The Sims Metal recycling business division has operations in North America, Australia, New Zealand, and the UK, and includes its North America Metal (NAM) segment.

Commenting on the six-month period ended Dec. 31, 2023, Sims said, “The seaborne ferrous scrap market was negatively impacted by two significant factors: a global manufacturing slowdown and escalating geopolitical tensions, resulting in a reduction in metal scrap demand in international trade.”

Sims’ NAM segment relies more heavily on the export market, so its results were more impacted by the slowdown in trade, Sims said.

The performance of the SA Recycling joint venture showed more resilience due to its “strong domestic sales and procurement of scrap at source.”

North America Metal

Sims’ NAM division posted an underlying EBIT loss of AUS$8.8 million (US$5.76 million) in the six-months ended Dec. 31, a drop of 6.3% from a year earlier. Intense competition in scrap sourcing and challenging export markets were cited as reasons for the decline.

NAM’s intake volumes rose 6.5% to more than 2.47 million metric tons (mt) in the six-month period. However, excluding the impact of the acquisitions of Baltimore Scrap Corp. (BSC) in August and Northeast Metal Traders in March 2023, intake was “flat due to challenging market dynamics,” the company said.

NAM’s sales volumes of 2.47 million mt were 0.8% higher than a year earlier, but excluding acquisitions were down 4.5%.

Sim’s acquisition of BSC and the integration of nonferrous NMT mark important steps “in realigning NAM with US market trends,” Sims commented.

Sims’ NAM division operates 59 metal facilities and 48 shredders.

SA Recycling

SA Recycling’s EBIT grew 13% year over year (y/y) to AU$59.6 million. Its focus on the US domestic market, as well as recent acquisitions, were cited as reasons for the growth.

SA Recycling’s sales were 10.7% higher y/y at 2.431 million mt.

Since 2007, Orange, California-based SA Recycling has been a 50/50 joint venture between Sims and the Adams family. It operates 24 shredders and 130 locations across 16 US states, according to Sims’ 2023 annual report.

The headline index for Empire State manufacturing saw a huge contraction to start the year, plummeting from -14.5 in December to -43.7 in January. Despite shooting up 41 points this month, the index remained negative at -2.4 for February.

The survey, conducted Feb. 2-8, points to an ongoing decline in new orders, a small increase in shipments, a modest contraction in inventories, and short delivery times, the Fed said.

“Manufacturing activity continued to edge slightly lower in New York state after contracting sharply in January, and price increases picked up. Firms’ optimism remained subdued,” noted Richard Deitz, economic research advisor at the New York Fed.

The headline index suggests slow manufacturing in the state and pessimism from manufacturing executives. The highest the headline index got in 2023 was 10.8 in April. For all of 2023, the index averaged -8.6. In 2022, it averaged -2.9.

An interactive history of the Empire State Manufacturing Index is available on our website.

ArcelorMittal, which owns 62% of Taranto, responded by saying it was surprised and disappointed to learn via media reports that Invitalia had called for the special administration, as that proposal was not mentioned during an emergency board meeting held on Sunday, Feb. 18. “This is an egregious breach of the investment agreement,” the AFP news agency quoted the company as saying.

The Luxembourg-headquartered group also reiterated it is seeking an orderly exit from the public-private partnership, Acciaerie d’Italia (ADI).

Italy’s economic development minister Adolfo Urso said: “[ArcelorMittal] doesn’t have the intention to invest in the company. I believe that the country is justified in reappropriating the fruit of its labor and the sacrifices of entire generations.”

The government prepared the ground for special administration back in January.

Ownership uncertainty returns at ADI

To some extent we have been here before. The former Ilva was placed in special administration in 2013 amid a long-running legal case against its former owners Gruppo Riva centering on violations of environmental standards that were associated with elevated incidences of cancer in the local population around Taranto. In 2021, this case led to multiple managers, politicians, and consultants associated with Ilva receiving jail sentences, including 22 and 20 years, respectively, for brothers Fabio and Nicola Riva.

After operating under special administration for five years the deal that led to ArcelorMittal taking majority ownership of Ilva was agreed to in 2018. But Acciaierie d’Italia, as it was renamed, has often been in the news with stories – whether founded or otherwise – of discontent and apparent tension around the relationship between owners, operators, unions, and politicians. Operationally it has been running well below installed capacity. Reduced utilization is not something confined to ADI in the European steel industry, but steel is an emotive sector worldwide and any perceived weakness in it can be leveraged by various stakeholders to pursue their goals, whether that be employment levels, votes, or other factors.

At the time of writing, special administration has not actually taken effect, but the threat is that this will happen in the coming days. This may yet be a negotiating tactic. But with ArcelorMittal apparently prepared to exit, albeit on different terms, it seems that ownership changes will once again happen in Italy one way or another. What will happen next? If ADI is effectively nationalized, the government may look to increase production in the short term for political rather than commercial reasons. With sheet prices now falling in Europe, that would add supply into a weakening market and probably cause further short-term price falls. Longer term, there would be the question of what the future ownership structure looks like. Special administration is a tool but not a permanent solution, and the government has taken pains to highlight that it believes there to be interest from multiple parties in coming on board at ADI. One might keep an open mind on this. The political risk must surely now be perceived as elevated.

This article was first published by CRU. Learn more about CRU’s services at www.crugroup.com/analysis.

The mill capability utilization rate was 77.5% in the week ended Feb. 17, up from 77% a week earlier yet down from 80.5% a year ago. At 77.5%, utilization is at its highest since the week ended June 24, 2023, when capability reached 78.1%.

Despite the boost, present utilization rates at a total steel output of 1,721,000 st assume the estimated total annual domestic production of 115.4 million st, which is a decrease of 4.1 million st from the end of 2023.

Year-to-date production through Feb. 17 was 11,657,000 st at a capability utilization rate of 76.5%. That was off 1.8% from 11,873,000 st in the same period a year earlier when capability utilization was 78.1%.

Production by region is shown below, with the week-over-week changes shown in parentheses:

• Northeast – 127,000 st (down 6,000 st)
• Great Lakes – 558,000 st (down 2,000 st)
• Midwest – 190,000 st (up 2,000 st)
• South – 777,000 st (up 18,000 st)
• West – 69,000 st (down 1,000 st)

Editor’s note: The raw steel production tonnage provided in this report is estimated. The figures are compiled from weekly production tonnage provided by approximately 50% of the domestic production capacity combined with the most recent monthly production data for the remainder. Therefore, this report should be used primarily to assess production trends. The AISI production report “AIS 7”, published monthly and available by subscription, provides a more detailed summary of steel production based on data supplied by companies representing 75% of U.S. production capacity. 

With upstream steel and scrap operations and downstream painting operations in its US portfolio, BlueScope is now considering adding a new midstream facility to fully integrate its value chain. While the focus of a feasibility study is on building a new facility, it is also considering seeding and acquisition options as well, the company said in its financial report for the six months ended Dec. 31, 2023 – the first half of BlueScope’s 2024 fiscal year.

“Our study is focused on a cold rolling and metal coating facility in the Midwest, providing a reliable supply of high-quality metal coated feed, which will be critical in delivering our US growth ambitions as we take our core DNA in coating and painting into the large and growing US market,” BlueScope CEO Mark Vassella said on the company’s quarterly earnings call on Monday, Feb. 19.

BlueScope is initially considering adding 550,000 metric tons (mt) of cold rolling and 550,000 mt of coating capacity “to be delivered in a phased approach to 2030,” the company’s report said.

Locations in Ohio, Indiana, Michigan, and Tennessee are being considered.

If the plan is fully executed, BlueScope estimates it will cost $1.2 billion over the next seven years.

The company said it will provide an update on the potential project in the second half of calendar 2024.

North Star expansion still ramping up

BlueScope said the ramp-up of its initial expansion at North Star BlueScope is progressing well, with the project producing 320,000 mt in the July-to-December period.

The company is targeting an additional 500,000 mt/year through a debottlenecking program under assessment at the mill in Delta, Ohio. Projects include down coiler upgrades, slab temperature upgrades, and ladle isle flow upgrades, according to the investor presentation.

“What’s interesting from a debottlenecking point of view is that’s already started to highlight where the opportunities are for further capacity expansion,” Vassella commented on the call.

“It’s pretty interesting how, even in the ramp-up, they’ve now started to push into some of the debottlenecking tons,” he added.

“We’ve got a fabulous asset at North Star,” Vassella stated. “If we were to push that to 3.5 million (metric) tons or 3.6 million tons with the debottlenecking, what’s the relative value of taking some of that and converting it through cold rolling, metal coating, putting it into BCP (BlueScope Coated Products) as opposed to finding a market for another 500,000 tons or 600,000 tons of hot band in that region? So that’s the end of the play that we’re going through.”

North American earnings results

The North Star operations saw solid demand in the six months ended Dec. 31, with the mill running at full capacity, other than during the scheduled maintenance outage in November.

The company noted robust underlying demand but some impact in the period from the United Auto Workers (UAW) strike.

North Star BlueScope had sales of nearly $1.17 billion in the six-month period, a 6% sequential decline but a 7% year-on-year rise.

“We’re guiding to a significantly higher result in North America. North Star is expected to deliver a result approaching double that of the first half of ’24 on stronger spreads, increased volume, and lower conversion costs,” CFO David Fallu commented on the call.

“Looking at activity levels across our North American end-use segments, the key takeaway here is the economy in North America continues to perform at a better level than what was expected in the half, with nonresidential activity setting new records and automotive sales and manufacturing activity remaining resilient,” Fallu added.

BlueScope Coated Products

The $500-million acquisition of Coil Coatings in 2022 (now its BCP segment) accelerated its painted strategy in the US market, BlueScope said. Work is underway to address under-utilization in the segment in the near term. Medium- to longer-term coated and painted opportunities in the US remain attractive, the company said.

BlueScope Recycling

The BlueScope Recycling segment provided the North Star mill with 30% of its scrap requirements in fiscal H1’24.

The company is moving forward with several initiatives aimed at increasing its self-sufficiency in scrap to 40%. Those initiatives include installing pre-shredders and leveraging AI and robotics for enhanced nonferrous recovery.

Vassella said in his comments that the recycling business has exceeded expectations, bringing “significant value” to the North Star business.

Single‐family housing starts in January were 1,004,000, down 4.7% from the revised December figure of 1,054,000.

“Moderating mortgage interest rates in 2024 will ultimately lead to gains for single-family home building this year,” Alicia Huey, chairman of the National Association of Home Builders (NAHB), said in a statement.  

“However,” she added,  “tighter lending conditions and higher costs for construction and development loans are holding back some construction at the start of the year.”

Regionally, combined single-family and multi-family starts were down across the nation month over month (m/m). They fell 20.6% in the Northeast, 30% in the Midwest, 9.7% in the South, and 15.7% in the West.

At the same time, the overall number of privately owned housing units authorized by building permits in January was at a SAAR of 1,470,000. While down 1.5% from a revised December rate of 1,493,000, tha was 8.6% higher than the January 2023 rate of 1,354,000.

I’d also thought that was maybe a little too simple. But the chart below, on service center prices, supports that hypothesis:

We don’t track service center pricing in absolute terms. We track it directionally. The dark blue bars represent service centers increasing pricing. The light blue bars represent them holding pricing steady. And the orange bars represent centers decreasing prices. We also note leading mill price increase announcements above those bars.

A tale of two restocks

If service center prices are a good indicator, one restock began late in 2022. Service centers began to raise prices late in Q4’22. This was after prices fell to $615 per short ton (st) on average around Thanksgiving of that year, according to SMU’s pricing archives. Cleveland-Cliffs subsequently a announced a price hike, one that was soon followed by other mills. (Our price increase calendar is useful for keeping track of those. It’s here.) The gains accelerated into Q1’23.

But by early Q2’23, and despite continued mill price increases, service centers were mostly holding prices steady. And before long, the pendulum had swung the other way with mills and service centers decreasing prices. (There were of course no price decrease announcements from sheet mills. Because in sheet, unlike in plate, prices never officially fall.)

That approximately quarter-long price upswing might normally have represented the big restock for 2023. Instead, we saw one more.

Service centers started increasing prices in Q4’23 – just after hot-rolled (HR) coil prices fell to a 2023 low of $645/st on average in late September. They continued to raise prices throughout the fourth quarter. But the pace of gains slowed down early in the first quarter, despite a price increase by Cliffs. Service centers briefly held prices steady. But, more recently, we’ve seen service centers decreasing prices along with domestic mills.

To recap, we saw one restock in Q1’23 and another, one that was pulled forward, in Q4’23. With demand stable, and with sheet inventories high compared to last year, it’s not obvious (at least to me) where another round of sharply higher prices might come from.

Where do prices go from here?

Take a look at Laura Miller’s ‘Market Chatter’ article, which also pulls out some highlights from our latest steel market survey. Almost no one thinks prices will bottom this month. And more than half don’t think the market will find a floor until Q2.

Also, nearly two-thirds think that HR prices in mid-April will be below $900/st, with 23% predicting numbers in the $700s/st. We didn’t give folks an option to predict prices in the $600s. But some alluded to that in comments they left with us.

Generally speaking, the consensus seems to be that post-pandemic prices have a higher floor than pre-pandemic prices. And, as best as I can tell, that has been interpreted to mean that prices won’t fall into the $600s/st. That said, we’ve seen two price floors in the $600s per ton – as noted above, a 2023 low of $645/st last September and a 2022 low of $615/st on average in November of that year.

I don’t think we’ll see prices for standard spot buys fall into the $400s or $500s/st as we did before the pandemic. But why couldn’t we see HR prices fall, at least briefly, into the $600s/st again – especially if scrap continues to move lower? To be clear, I’m not predicting that. And I’d be curious to hear your thoughts.

SMU Community Chat

Don’t miss our next Community Chat on Wednesday, Feb. 21, with Mercury Resources CEO Anton Posner.

We’ll talk about the fighting on the Red Sea, the drought on the Panama Canal, and what that means for global supply chains. We’ll talk about issues closer to home as well – from truck and rail to how inland barges have dealt with fluctuating water levels on the Mississippi River.

You can register here.

What we’ll talk about

We’ll talk about the global supply chain, military tensions on the Red Sea, the drought on the Panama Canal – and what it means for steel.

When it comes to the Red Sea and the Suez Canal, will we see vessel traffic around Africa become a more permanent feature of the trade landscape? And will we see ships increase speeds – despite increased carbon emissions – to help make up for the lost time?

Closer to home, we’ll talk about the drought on the Panama Canal. Is that a fleeting issue or could it – like low water levels on the Mississippi River – be a function of climate change and so a longer-term problem?

All told, are these supply chains problems on par with the delays we saw coming out of the pandemic or following the war in Ukraine? Or are the current challenges easier for shippers to navigate?

We’ll talk about truck, rail, and barge issues well. And we’ll take your questions too. So think of some good ones to bring to the Q&A on Wednesday.

Why you should listen

Posner is in a good position to address such questions because Mercury Resources specializes in global supply chain management for commodities. The company’s end-to-end solutions include everything from warehousing to ocean freight as well as inland barge, rail, and trucking services.

As always, we’ll keep it to about 45 minutes. You can drop in, learn something – and then get on with your day.

Courts too slow to help

Federal law requires that companies give 60 days’ notice of plant closings affecting more than 100 workers. Thus, the idling of Weirton is scheduled to be effective in April. Weirton is one of nearly 40 Cliffs production and processing locations in the United States and Canada. The company as a whole is in no danger. The US users of tin mill products, who applauded the negative injury votes as a boost to the US economy, did not immediately react to the announcement of the Weirton shuttering.

Is Cliffs really shutting down Weirton in 60 days? It may well be. If so, the company thinks that it can no longer operate profitably in the tin mill products market due to international competition. That is a momentous conclusion. If the Weirton plant is to be saved, is it possible that a decision could be reversed between now and April?

Legally, Cliffs and the USW can appeal to the Court of International Trade (CIT) challenging the ITC negative injury determination. An appeal cannot be filed until after the final ITC decision is issued. That will occur in March. The court proceedings will last at least a year. If the plant is to close in April 2024, the courts are not likely to prevent it.

If the CIT were to reverse the ITC decision (which will be difficult for Cliffs to accomplish), the case would be sent back to the Commission for further proceedings. That would take three to six months (or more). If the Weirton plant were already closed, restarting it at the end of court proceedings would not be easy. The longer the process takes, the harder a restart will be, most likely.

But what if the ITC had new commissioners?

There are other things that Cliffs could do. It would be speculative to go over all the options in this column. I’ll just give one possible scenario, which plays on the membership of the ITC itself. The Commission is composed of six members (commissioners), nominated by the president and confirmed by the Senate, for specifically designated nine-year terms. Under the law, commissioners may serve past their terms’ expiration until a successor is nominated and confirmed.

Currently, four ITC seats are filled. Only one of the four is serving a term that has not already expired (Jason Kearns, whose term expires in December 2024). The other three sitting Commissioners are holding over after the expiration of their terms: Chairman David Johanson (term expired December 2018); Rhonda Schmidtlein (term expired December 2021); and Amy Karpel (term expired June 2023). Two other seats are vacant (terms expiring June 2026 and June 2029).

No ITC nominations have been announced since President Joe Biden took office in 2021. Perhaps it’s time he did so. If he did, he could immediately nominate candidates for five of the six seats on the Commission, and the sixth seat would come open in December of this year. Imagine a president with the opportunity to nominate all nine Justices on the Supreme Court!

That situation might pave the way for Cliffs to file a new petition on tin mill products. No predictions here, just musings at this point. But could a flurry of ITC nominations convince Cliffs to keep Weirton open for a while?

U.S. Steel response

The Pittsburgh-based steelmaker ensured the union that the deal with NSC “secures the long-term future of union jobs,” it said in a statement mid-day immediately following the meeting.

The two sides disagree as to whether U.S. Steel violated the Right-to-Bid provisions of the Basic Labor Agreement. U.S. Steel said it “fully complied” with the provisions, while the USW maintains their breach.

SMU asked the steelmaker and union what the next steps in the disagreement are. A USW spokesperson said they don’t have any additional details at this time. U.S. Steel had not responded by this story’s publication.

“We continue to work with the USW in good faith to resolve this dispute,” U.S. Steel noted.

“The lines of communication remain open between U.S. Steel leadership and its employees,” it added.

At the end of the statement, U.S. Steel provided a link to a new website: bestdealforamericansteel.com. A collaboration between U.S. Steel and NSC, the website provides an array of information about the proposed sale of USS to NSC.

In a recent SEC filing, U.S. Steel said it requested the union sign a non-disclosure agreement when it informed the union of the formal review process on Sept. 5, 2023, but the USW never actually signed one. Without a confidentiality agreement, U.S. Steel counsel warned against sharing sensitive information with the union.

USW response

A few hours after USS released its statement on Friday, USW sent a memo to its members.

In it, the union revealed that on Sept. 8, 2023, then-international president Tom Conway sent an email to USS president and CEO David Burritt. The email included a draft agreement that, while also addressing confidentiality concerns, would have given the union an inside view into the sales process.

“Burritt never responded to President Conway’s email, something that Burritt himself will need to explain,” the union stated.

SMU asked USS and Burritt for comment on this. They had not responded by this story’s publication.

Commenting on how quickly U.S. Steel’s statement went out after the meeting, the union said in a letter to members: “USS posted its own spin before anyone in the meeting likely had finished the walk back to their offices, which tells you everything you need to know about U.S. Steel’s ongoing lack of interest in actually resolving the many disputes we have with them about the Nippon merger.”

In the US, scrap prices fell to the tune of $20–30/long ton m/m for busheling and HMS scrap, while remained stable m/m for shredded scrap. Steelmakers in most regional markets within the US were able to complete their purchases with ease despite winter weather hindering flows to scrapyards. This is because scrap availability remained ample due to reduced export sales to Turkey and weaker buy programs of domestic mills, most of which were well stocked heading into February.

Similar to the US, scrap prices were flat to down m/m across major Asian markets as buyers resisted fresh purchases ahead of holidays in China and Southeast Asia and as steel mill utilization rates remain reduced. Chinese EAF steelmaking utilization rates dropped to 35% in early February compared to 63% in early January in response to labor shortages and weaker margins. Accordingly, mills lowered their scrap bids to procure much lesser volumes. In Japan, the recent depreciation of the yen had an unusual effect on their scrap export prices, which rose in yen terms but dropped by $5–10 per metric ton (mt) in USD terms.

Meanwhile, scrap buyers in Bangladesh were able to negotiate $10/mt m/m lower scrap import prices due to low demand in the seaborne market by Indian and Turkish buyers. This price reduction happened at a time when liquidity conditions improved in Bangladesh and scrap demand rose due to an increase in steel mill run rates.

Unlike the US and Asian markets, the scrap market in the European Union was better balanced as weak demand was offset by limited supply. Steelmakers in the region were slow to ramp up operations to keep steel prices supported amid subdued finished steel demand. Consequently, their scrap orders remained slow. However, scrap supply in the region fell sharply due to poor weather combined with holidays in December and January. Some scrap sellers also chose to hold off on sales in the past month, discouraged by weaker margins amid rising costs – particularly that of transportation. Industrial origin scrap supply also reduced, specifically from automakers in Germany. Thus, a combination of weak demand and weaker supply kept scrap prices supported in the EU.

Meanwhile, pig iron prices in the US fell in line with downward revisions to local scrap prices while remaining stable m/m in other major regions. Reduced supply from Brazil was offset by softened demand in the US, as steel mills carried forward sufficient inventories from the end-2023 restocking cycle. Moreover, although Ukrainian-origin pig iron became more accessible to US buyers, buying interest remained low due to the risk-averse behavior of buyers. European pig iron price was unchanged m/m despite availability of competitive price offers from Russian suppliers, as buyers intend to limit their exposure to Russia. Italian HBI import price dropped $15/mt m/m due to rising supplies from Libya.

This article was first published by CRU. Learn more about CRU’s services at www.crugroup.com/analysis.

Race to Green Steel is a collaborative effort between Industrious Labs, CALSTART’s Green Steel Program, International Council on Clean Transportation, and Climate Group.

The campaign also helps automakers navigate existing programs “focused on setting targets and procuring low-emissions or near-zero emissions steel.” These include the SteelZero initiative from Climate Group and Sustainable Steel Buyers Platform from renewable energy nonprofit Rocky Mountain Institute (RMI).

“There is clear corporate desire to move towards lower-emissions products, which is why more than 3 million metric tons of near-zero emissions steel is already in demand by the auto industry by 2030,” Chathu Gamage, principal at RMI, said. “This number still needs to grow, which is why we need initiatives like Race to Green Steel.” 

In your own words, with minimal editing, here’s what some of you in the SMU community shared with us this week, as well as some of the slides from this week’s steel buyers’ survey.

When do you think sheet prices will bottom, and why?

March

“Demand is OK; inventories are fairly lean. Pricing won’t go down forever.”

“It will depend on how quickly prices drop, but I see a mid-late March bottom.”

“March is the month where lead times stall and hit their lowest point and allows a few more weeks of buyers pushing prices lower than they should probably go.”

“I think we have much more room for falling prices.”

April

“Some mills have a backlog of orders, but others are showing signs of holes in the order book. It will take some time for the bottom of the market to be realized.”

“Offshore pricing is still much better than domestic, and supply is good at service centers.”

“They will bottom when European imports stop coming in.”

“Lead times are contracting, and steel service centers seem to be destocking after ordering a large amount in Q4.”

“I feel we will see a slower decline than the increase late last year, getting down into the low $800s.”

May or later

“We are expecting to see a few months’ worth of slides here. I don’t think it outlandish to call for sub-$800/ton HRC as Q2 rolls around.”

“Hot rolled is falling at a faster pace than cold rolled or coated, and I expect this to continue.”

“Forward curve is bearish.”

Hot-rolled coil prices averaged $980 per ton in our last market survey. Where will prices be in two months?

$1,000-1,049 per ton

“Good demand fundamentals will pull prices higher by April.”

$950-999

“It won’t change that quickly.”

$900-949 per ton

“I would think in two months, prices are back up a bit.”

$850-899 per ton

“Word on the street is that large transactions are already happening below this.”

“Mills will hit the market with increases as the bottom overcorrects.”

“Economy is still sluggish, and the election cycle will get more dramatic.”

“Oversupply, and demand is not as strong as forecasted.”

$799 per ton or lower

“Nothing to stop it.”

“The peak was $55/cwt ($1,100/ton) in late December. The low point was $33/cwt ($660/ton) in early October. Hope springs eternal this time of the year, but it won’t hold. The cycle will prevail.”

“The last few market bottoms have occurred when the HRC to #1 busheling spread went below $300/ton. Scrap is at $480, so I expect it to get into the $700s.”

“Mills cannot help themselves but try to grab market share.”

“Prices will drop and will have to settle into a new price normality, as demand is not enough to sustain high prices.”

“If we get $20-30/ton drops, we’ll be below $800/ton in late March/early April. Crazy, but we’ll probably get there.”

“Futures trading at $780/ton today for April”

“Imports coming into Gulf Coast.”

Prime scrap prices in March will be:

Down

“Quite a bit of confusion out there on scrap, but it seems far less bullish at the moment.”

“Scrap prices have already started to drop.”

“Weather allows more flow into the yards.”

“Seems like everyone is pointing to pressure on scrap with coil prices falling.”

“Down slightly. Follow the forward curve and continued soft demand in China.”

“Collection improves, and numbers soften slightly.”

“Lower buying activity and lower service center inventories.”

Sideways

“Roller coaster.”

“Stable scrap demand.”

“Demand is climbing, but availability should be, too.”

“February is down, which is a departure from historical trends, so March will somewhat correct this by staying flat.”

“Transition will occur from export to domestic use.”

Up

“More demand as EAF capacity increases, also more demand for infrastructure poles, scrap for rebar, etc.”

How will your company perform this month compared to your forecast?

We will exceed forecast

“A couple large orders booked in Q4 are shipping this month.”

“We’ll be the exception and will exceed forecast. Most market respondents will be flat or slightly down from last year.”

We will meet forecast

“We are having issues placing orders, as buyers continue to push for lower prices.”

“We’re continuing to steal market share, so our business is meeting or exceeding forecasts.”

We will not meet forecast

“Have seen quite a bit of slowdown in February vs. January.”

“Seeing margin compression.”

“Customer forecasts keep falling, and we are reacting, but this will continue to reduce how much we are buying.”

Are you an active buyer or on the sidelines, and why?

On the sidelines

“We are buying what we need but minimizing quantity.”

“Already contracted late last year and don’t need additional tonnage.”

“But very close to being a buyer as quickly as prices have come down.”

“Only buying what we can sell back to back.”

“We’re ‘on the sidelines’ from a mill perspective, but we’re beating up all of the steel service centers pretty good right now.”

Active buyer

“Pricing has moved down, and offshore pricing is still lower than domestic.”

“Active, but only buying what we need for orders. We are working on reducing inventory.”

“Only buying what we will consume. We are depleting inventory.”

“Only for sold work, no speculation.”

“We maintain inventory, so we’re constantly buying smaller amounts.”

Thank you to everyone who participates in our surveys!

Do you not yet take part in our surveys but care to share your views as well? Contact david@steelmarketupdate.com to be included in our questionnaires.

If you need help accessing the survey results, or if your company would like to have your voice heard in our future surveys, contact david@steelmarketupdate.com.

UAW held a national “stand-up” strike starting Sept. 15. The labor action targeted specific plants at all three Detroit-area automakers. Tentative agreements were reached in late October and the contracts were ratified in November.

The union noted that members also negotiate “local agreements around plant-specific issues at each facility.”

“UAW vice president Chuck Browning has requested authorization from UAW President (Shawn) Fain to set a strike deadline at Kentucky Truck Plant for 12:01 a.m., Friday, Feb. 23,” the union said in a statement on Friday.

Located in Louisville, Ky., the plant produces the Ford F-250–F-550 Super Duty Trucks, Ford Expedition, and Lincoln Navigator, according to Ford’s website.

Issues cited included “health and safety in the plant, including minimum in-plant nurse staffing levels and ergonomic issues, as well as Ford’s continued attempts to erode the skilled trades at Kentucky Truck Plant.”

In addition to the Kentucky Truck Plant, there are 19 other open local agreements across Ford, as well as several open local agreements at GM and Stellantis, UAW said.

A request for comment from Ford was not returned by time of publication.

The number of active rotary rigs in the US slipped by two to 621 from the previous week. Oil rigs were off by two to 497. Gas rigs were unchanged at 121. Miscellaneous rigs were also flat at three.

The count of active US rigs is down by 139 from the same week last year when 760 rigs were in operation, according to the data from the oilfield services provider. There are 110 fewer oil rigs and 30 fewer gas rigs in operation, while the miscellaneous count is up by one to two.

Canada rigs

The number of operating oil and gas rigs in Canada moved up by two to 234 vs. the week prior. Oil rigs were up by three to 144, while gas rigs were down one to 90.

Drilling in Canada is also lower year over year. There are 14 fewer rigs running now vs. a year ago,  with oil rigs down 19, and gas rigs up 5.

International rig count

The international rig count is updated monthly. The total number of active rigs during January was 965, up 10 from December and up 64 from January 2023.

The Baker Hughes rig count is important to the steel industry because it is a leading indicator of demand for oil country tubular goods (OCTG), a key end market for steel sheet. A rotary rig rotates the drill pipe from the surface to either drill a new well or sidetrack an existing one. For a history of the US and Canadian rig counts, visit the rig count page on our website.

SMU’s Current Buyers’ Sentiment Index stood at +66 this week, equal to two weeks earlier (Figure 1). The index last touched the +70 level at the end of November.

SMU’s Future Buyers’ Sentiment Index measures buyers’ feelings about business conditions three to six months in the future. This week, the index slipped four points to +58 (Figure 2). This is the first time it has dipped below +60 since the beginning of June.

Measured as a three-month moving average, the Current Sentiment 3MMA edged down to +65.00 from +65.67 at the last market check. (Figure 3). 

This week’s Future Sentiment 3MMA declined to +63.50 vs. +66.33 two weeks prior (Figure 4).

What SMU respondents had to say:

“Solar and truck/trailer are slowing.”

“Service centers trying to play the price arbitrage game right now.”

“Seeing some delays and cancellations.”

“Contracts are down a bit, but spot is increasing.”

“Less important demand (in market), but overall demand steady.”

About the SMU Steel Buyers’ Sentiment Index

The SMU Steel Buyers Sentiment Index measures the attitude of buyers and sellers of flat-rolled steel products in North America. It is a proprietary product developed by Steel Market Update for the North American steel industry. Tracking steel buyers’ sentiment is helpful in predicting their future behavior.

Positive readings run from +10 to +100. A positive reading means the meter on the right-hand side of our home page will fall in the green area, indicating optimistic sentiment. Negative readings run from -10 to -100. They result in the meter on our homepage trending into the red, indicating pessimistic sentiment. A reading of “0” (+/- 10) indicates a neutral sentiment (or slightly optimistic or pessimistic), which is most likely an indicator of a shift occurring in the marketplace. Sentiment is measured twice per month via SMU surveys. If you would like to participate in our survey, please contact us at info@steelmarketupdate.com.

Downward pressure builds for the US Midwest premium           

The US Midwest premium was assessed slightly lower this week at $0.185–0.19 per pound, following five weeks of stability.

Despite the host of issues that would suggest an upward move for the Midwest premium in the short term, there was evidence this week to suggest the opposite. Trading on the CME pushed the one-month price under $0.18/lb earlier in the week. The downward move is a sign of the increasingly subdued sentiment to start the year and a reaction to the Fed’s position on keeping interest rates higher at the beginning of the year. This was emphasized further with the latest inflation data release which was higher than expected. Current spot is also lower w/w, now trading between $0.185–0.19/lb.

Dates further out on the curve also trended lower, consolidating just above $0.20/lb for the remainder of 2024. December 2024 had been trading as high as $0.22/lb in late 2023. The market is perhaps coming to terms with minimal demand growth expected this year, owed mostly to the sluggish start. It is worth mentioning that sentiment could change rapidly, especially considering the election later this year, with talks of further tariffs already creeping into the conversation. However, with government support building for the current onshoring trend and a trade case affecting a large portion of extrusions demand, the need for metal in the region could increase rapidly which would boost premiums.

Hydro’s Q4 results impacted by lower prices and extrusions results despite lower costs

Norsk Hydro released its Q4’23 results. The Norwegian producer posted an adjusted EBITDA of NOK3.737 billion ($350 million), lower both q/q (-4.1%) and y/y (-48%). As for the unadjusted EBITDA, it came in higher at NOK4.673 billion amid an unrealized profit on LME contracts totaling NOK954 million, partly offset by an unrealized loss of NOK33 million on power contracts. Overall, the lower adjusted EBITDA at the group level was mainly due to lower prices and weaker extrusions results, partially offset by lower raw material costs. 

The adjusted EBITDA for its primary metal division came in at NOK1.937 billion – a drop of 59% y/y but up 40% q/q. Hydro said the results were down y/y on lower all-in metal prices, reduced contribution from power sales and lower sales volume, partly offset by reduced raw material cost, adjusted CO2 compensation and positive currency effects.

Primary production came in at 514,000 mt, down 8,000 mt y/y and up by 2,000 mt q/q, while sales of 541,000 mt were broadly stable both from last year (-1,000 mt) and last quarter (+2,000 mt). The all-in price, including the premium, came down another $101/mt from Q3 at $2,477/mt, and down 12% y/y. The implied all-in primary cost, however, was down another $100/mt from Q3 at $2,125/mt and down from $2,250/mt in Q4’22. As for its outlook for Q1’24, Hydro said it expected raw material costs to continue decreasing. It also said it had around 67% of its primary production for Q1 priced at $2,255/mt and 46% of premiums booked at $373/mt.

Novelis profitability increases amid lower costs

US-based aluminum product manufacturer Novelis posted fiscal Q3 net earnings of $121 million, ten times more than the year-ago $12 million on the back of margin recovery. This was thanks to higher pricing and lower operating costs in the recycling side of business as a result of high inflation and geopolitical instability, according to the Atlanta-headquartered company. Yet sales revenue was down 6.4% to $3.93 billion in the three months. Deliveries were little changed at 910,000 mt in Q4’23 versus 908,000 mt in Q4’22. 

A decline in specialty product shipments caused by muted economic conditions in some markets was more than offset by continued growth in automotive shipments and a demand return for beverage packaging sheet, Novelis said. The company expects even better margins this quarter because shipments seasonally improve and Novelis will “drive more operating leverage,” said CFO Devinder Ahuja.

Furthermore, Novelis is currently constructing a cutting-edge, greenfield rolling and recycling plant located in Bay Minette, Ala. The facility is expected to have an initial production capacity of 600,000 mt of finished goods, specifically catering to the beverage packaging and automotive markets in North America. Notably, this project marks a significant milestone — it is the first fully integrated aluminum plant to be built in the US in nearly 40 years. Furthermore, it represents the largest project in the company’s history.

This article was first published by CRU. Learn more about CRU’s services at www.crugroup.com/analysis.

SMU reached out to a buyer of export-quality HMS for a large exporter. Despite the winter storms “flows have been adequate.” Most terminals have not tried to reduce inbound prices since January. “This has kept scrap coming in”, he said. Prices reported for remote HMS are in the range of $330-335 per gross ton (gt) delivered to East Coast docks.

Over on the West Coast, there is lack of activity as the Chinese Lunar New Year is in full swing. The bulk export markets are mainly in the South Asian regions of Bangladesh and India. The prices reported in those to areas are in the $410-415/mt range for #1/#2 HMS 80/20 and $10/mt more for shredded.

SMU reached out to Phil Hoffman, chairman of scrap trading company Hoffman Iron and Steel. He said the scrap container markets on the US West Coast are under pressure from other Asian countries, which are exporting to the two major buyers of US-based sellers.

These buyers are Taiwan and Vietnam. Hoffman estimated the prices to be $370/mt CFR Taiwan and $390 into Vietnam. Most US exporters want $380 to Taiwan. So, if they cannot obtain this price, “they’ll just sit on it,” Hoffman said. The consensus is the holiday season in Asia will limit activity for a while.

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.

SMU Service Center Shipments and Inventory Data

Our service center shipment and inventory figures are a great reason to consider upgrading from an executive to a premium membership.

You’ll have that data delivered once a month directly to your inbox. And you’ll also have access to it on our website here. To learn more, contact info@steelmarketupdate.com.

This relationship (physical vs. futures) is what is referred to as “basis” or simply the difference between the two. Having a historical understanding of the basis can help inform risk-management decisions around raw material transactions and can also help support or challenge a company’s bias or directional view on the market over time.

Under the hood, this volatility doesn’t just have implications in the futures market. Physical pricing is affected by the combination of futures volatility, the futures contract settlement structure, and processes inherent in them. Transactions occurring during different weeks when the CRU HRC index prints have had varying outcomes relative to the futures contract for that same month since 2009. See below:

As stated in the contract specifications in the CME rulebook, “The Floating Price for each contract month is equal to the average price calculated for all available price assessments published for that given month by the U.S. Midwest Domestic Hot-Rolled Coil Steel (CRU) Index”.

While the CRU index and HRC futures have a significantly high correlation (99%), discrepancies between physical and futures exist, as they do across all of the commodity markets we serve.

While pricing discrepancies may be something our readers are keenly aware of, understanding basis better can help operators manage it more effectively. When managing the risk of an adverse change in physical prices, two primary risks are exposed to this change: the futures component or benchmark price and the basis differential that relates that futures value or benchmark to a local physical market.

By definition, PHYSICAL = FUTURES + BASIS; therefore, BASIS = PHYSICAL – FUTURES.  While futures are used as a hedge against an adverse move in physical prices, the basis differential remains a floating variable to the final determined price. Basis itself can be subject to adverse fluctuations from the time the futures hedge is initiated to the time the hedge is removed and the physical price is agreed upon.

As a long hedger (someone who needs to buy the commodity in the physical market), one is exposed to a stronger basis. As a short hedger (someone who needs to sell the commodity in the physical market), one is exposed to a weaker basis. The graph below illustrates the movement of basis and its impact on the long and short hedger:

While basis variation is significant, fortunately it is the smaller portion of overall price variation. Futures variation accounts for approximately 80% of the overall variation in physical prices. Despite this, unfavorable movements in basis can limit the effectiveness of a futures or options hedge in protecting price. Below you will see the average basis history by month since 2014:

For many markets, basis can be set independently of price well ahead of time, thus removing this variable cash price risk from the equation. However, because of uncertainties associated with basis movement, particularly in years of extreme price volatility, the costs associated with establishing basis can be high, and the forward basis value offered in the physical market can appear unattractive relative to historical levels.

Just as futures prices display seasonal tendencies, so does basis. HRC exhibits its own seasonality, and companies may be able to use this information to inform their purchasing. HRC basis tends to be the weakest in January-March and strongest in September-October. See the average basis ranking for each month below:

If a standalone basis contract is not offered in the physical market, a company could recreate it. They can accomplish this by establishing a physical purchase with their supplier and use the exchange to offset the price component they’ve agreed to when purchasing the physical. The exchange position would come as a sold futures contract or put option. This would establish a basis-only exposure. Remember, PHYSICAL= FUTURES + BASIS, so the long physical and short futures offset each other to leave BASIS as the company’s position.

As an example, the raw material purchase price is $900, and the forward futures price is $950. The company could establish a short position in the relevant futures contract and create a long basis position of $-50. 

As an alternative to forward-pricing basis, futures spreads can be used to manage the risk of a strengthening basis. The reasoning behind this is that basis and spreads do exhibit a relationship in which they tend to move together. For example, in situations where the physical market is very strong, basis tends to be increasing. This typically is reflected in the spot futures contract gaining relative to deferred contracts.

In the opposite case, where the physical market is very weak, basis tends to be decreasing. This usually corresponds with spot futures declining relative to deferred contracts. It is important to note that while the example given is typical, the premium or discount physical has to the futures price is an independent risk. Basis can move higher even if the futures price is declining or move lower if the futures price is rising.

Futures spreads are non-directional. An important point to note is that using a futures spread to mitigate basis risk is separate and distinct from using futures or options to hedge price risk. As an example, if a company purchases HRC futures as a hedge against higher physical prices in a forward period, and in addition, the company uses a spread to manage the basis risk for that same timeframe, these are two separate positions hedging two separate risks. In fact, these basis hedge positions are typically segregated in a separate account to prevent unintentional offsets of price hedges.

By better understanding the discrepancy between the CRU index and spot HRC futures, or basis, companies can identify and address risks to their core business function through their operations or through the exchange. As for managing basis, much like markets, we can only use this data to inform our expectations. Anomalies can and do happen. That said, HRC futures spreads tend to show a relationship to physical basis and can be considered, among other tools, to mitigate risk to adverse physical price movements.

There is a risk of loss in futures trading. Past performance is not indicative of future results. © 2024 Commodity & Ingredient Hedging, LLC. All rights reserved.

In dollar-per-ton terms, US HRC is now on average $131 per short ton (st) more expensive than offshore product, down just $40 on average w/w and off nearly $150/st from an average premium of $281/st a month ago, and a four-month low.

This week, domestic HRC tags were $940/st on average based on SMU’s latest check of the market on Tuesday, Feb. 13. US prices are now at their lowest level since last November.

Methodology

This is how SMU calculates the theoretical spread between domestic HRC prices (FOB domestic mills) and foreign HRC prices (delivered to US ports): We compare SMU’s US HRC weekly index to the CRU HRC weekly indices for Germany, Italy, and East and Southeast Asian ports. This is only a theoretical calculation. Import costs can vary greatly, influencing the true market spread.

We add $90 per ton to all foreign prices as a rough means of accounting for freight costs, handling, and trader margin. This gives us an approximate CIF US ports price to compare to the SMU domestic HRC price. Buyers should use our $90-per-ton figure as a benchmark and adjust up or down based on their own shipping and handling costs. If you import steel and want to share your thoughts on these costs, please get in touch with the author at david@steelmarketupdate.com.

Asian HRC (East and Southeast Asian ports)

As of Thursday, Feb. 15, the CRU Asian HRC price was $544/st, unchanged vs. the prior week. Adding a 25% tariff and $90/st in estimated import costs, the delivered price of Asian HRC to the US is approximately $770/st. The latest SMU hot rolled average for domestic material is $940/st.

The result: US-produced HRC is theoretically $170/st more expensive than steel imported from Asia. The spread is down $40/st vs. last week, and down $111/st from a seven-month high of $281/st in late December.

Italian HRC

Italian HRC prices were up $2/st to roughly $729/st this week. With that gain, Italian prices are up $152/st from a recent bottom of $577/st last October. After adding import costs, the delivered price of Italian HRC is in theory $819/st.

That means domestic HRC is theoretically $121/st more expensive than HRC imported from Italy. The spread is down from $163/st w/w. The domestic hot band price premium over offshore product from Italy is down $176/st from a recent high of $297/st in mid-December.

German HRC

CRU’s German HRC price ticked down $2/st vs. the week prior to $748/st. After adding import costs, the delivered price of German HRC is in theory $838/st.

The result: Domestic HRC is theoretically $102/st more expensive than HRC imported from Germany. The spread is now $163/st below 2023’s widest spread of $265/st, which was recorded just about a month ago.

Figure 4 compares all four price indices. The chart on the right zooms in to highlight the difference in pricing from the second quarter of 2023 to the present.

Notes: Freight is important in deciding whether to import foreign steel or buy from a domestic mill. Domestic prices are referenced as FOB the producing mill, while foreign prices are CIF the port (Houston, NOLA, Savannah, Los Angeles, Camden, etc.). Inland freight, from either a domestic mill or from the port, can dramatically impact the competitiveness of both domestic and foreign steel. It’s also important to factor in lead times. In most markets, domestic steel will deliver more quickly than foreign steel.

Effective Jan. 1, 2022, Section 232 tariffs no longer apply to most imports from the European Union. It has been replaced by a tariff rate quota (TRQ). Therefore, the German and Italian price comparisons in this analysis no longer include a 25% tariff. SMU still includes the 25% Section 232 tariff on prices from other countries. We do not include any antidumping (AD) or countervailing duties (CVD) in this analysis.

Our average HRC price stands at $940 per short ton (st) as of Feb. 13, off $ $40/st from a week prior.

Meanwhile, busheling tags decreased $35 per gross ton month over month to an average of $455/gt in February. Figure 1 shows price histories for each product.

After converting scrap prices to dollars per short ton for an equal comparison, the differential between HRC and busheling scrap prices is $534/st as of Feb. 15, down $54 from a month earlier (Figure 2). This is the narrowest spread since October of last year when it stood at $338/st.

By the way, did you know SMU’s Interactive Pricing Tool has the capability to show steel and scrap prices in dollars per short ton, dollars per metric ton, and dollars per gross ton?

Figure 3 explores this relationship in a different way: We have graphed HRC’s premium over busheling scrap as a percentage. HRC prices now carry a 107% premium over prime scrap, down from 109% a month ago.

In this week’s market survey, buyers reported lead times for hot-rolled sheet from 3 to 7 weeks. The average of 5.13 weeks was comparable to the 5.16-week lead time reported two weeks ago. Since the start of the year, HRC lead times have contracted by 1.13 weeks.

Buyers of cold-rolled sheet this week reported a lead-time range of 6 to 10 weeks, with the average of 7.62 weeks extending by 0.44 weeks from two weeks earlier. At the start of the year, CRC lead times were on average 8.00 weeks.

Galvanized sheet lead times were again reported by buyers this week to be between 5 and 10 weeks. The average of 7.40 weeks extended by 0.11 weeks from our Jan. 31 market check. Galvanized lead times are now just 0.53 weeks shorter than at the start of 2024.

Buyers reported lead times for Galvalume ranging from 6 to 10 weeks. This week’s average of 7.40 weeks is unchanged from two weeks ago. Galvalume lead times have come down by almost a week since the start of the year and are down from 12.00 weeks in late November.

Lead times for steel plate have held steady since the start of the year. Buyers said plate lead times are now between 3.5 and 8 weeks. The average of 5.88 weeks is comparable to the 5.80-week lead time seen at both the start and end of January.

3MMA lead times

To smooth out the variability in SMU’s biweekly readings, we can consider lead times on a three-month moving average (3MMA) basis.

Hot rolled’s 3MMA lead time was 6.49 weeks at the start of the year before bumping up to 6.57 weeks during the week of Jan. 17. It has since contracted for two consecutive market checks, coming in at 6.27 weeks.

The 3MMA lead times for cold rolled and galvanized have been above 8.00 weeks since our Dec. 21 check of the market. There’s been some movement in the averages, but they are largely steady, at 8.15 weeks for cold rolled and 8.20 weeks for galvanized.

We calculated Galvalume’s 3MMA lead time this week to be 9.19 weeks, the shortest it’s been since the end of November.

Plate’s 3MMA lead time has been between 5 and 6 weeks since September and has been steady since the start of 2024, registering 5.98 weeks this week.

SMU’s survey results

More buyers in this week’s survey (56% vs 55% two weeks ago) said they think lead times will be flat two months from now. Those expecting a contraction in lead times fell to 31% (from 33%). Still, 12% foresee extending lead times two months out.

Here’s what a few of our survey respondents had to say about lead times:

“We’re already seeing domestic lead times slip, and we aren’t even seeing the waves of imports yet.”

“Summer changeover and shutdowns should be impacting lead times in two months.”

“As we hit bottom and mills book deals, they will push lead times back up.”

“Mills will be forced to act to try and stop the freefall.”

“March is the month where lead times stall and hit their lowest point and allows a few more weeks of buyers pushing prices lower than they should probably go.”

“HR is relatively short. HDG is tight and long.”

SMU will next update lead times on Thursday, Feb. 29.

Note: These lead times are based on the average from manufacturers and steel service centers participating in this week’s SMU market trends analysis survey. SMU measures lead times as the time it takes from when an order is placed with the mill to when it is processed and ready for shipping, not including delivery time to the buyer. Our lead times do not predict what any individual may get from any specific mill supplier. Look to your mill rep for actual lead times. To see an interactive history of our steel mill lead times data, visit our website. If you’d like to participate in our survey, contact us at info@steelmarketupdate.com.

Friedman Industries posted lower earnings in its fiscal third quarter but was upbeat on the current quarter due to the effect of increased hot-rolled coil prices.

“The market value of our inventory increased substantially during the third quarter and we expect to realize this value appreciation during our fourth quarter,” Michael J. Taylor, Friedman president and CEO, said in a statement on Thursday.

Taylor said higher HRC pricing during the company’s Q3’24 increased its physical margins, “particularly during the second half of the quarter.”

However, he noted that the HRC price bump “brought a corresponding increase in HRC futures pricing, which caused the improved physical margin to be partially offset by our downside hedging protection.”

The Longview, Texas-based service center posted net earnings of $1.2 million in its Q3’24 ended Dec. 31, down 14% from $1.4 million a year earlier, on sales that increased 3.7% to $116 million.

The company said its flat roll segment had sales volumes of ~110,000 short tons (st) from inventory and another 22,000 st of toll processing in its Q3, compared to ~106,000 tons from inventory and 13,000 st of toll processing a year earlier. 

Friedman said the growth was “primarily related” to higher output at its Sinton, Texas, facility, which started operations in October 2022.

The company recorded sales in its flat roll segment of $106.4 million in fiscal Q3, up from $100.2 million in the same period the previous year.

For its tubular segment, Friedman recorded sales of $9.5 million in Q3, down from $11.6 million a year earlier.

“Sales decreased due to a decrease in the average selling price per ton, partially offset by an increase in the volume sold,” the company said.

Outlook

Looking ahead, Friedman expects “a strong fourth quarter characterized by solid margins associated with a substantial increase in HRC price entering the fourth quarter.”

Additionally, Friedman anticipates higher sales volumes in the current quarter vs. the same quarter last year.

Every two weeks, SMU asks steel buyers whether domestic mills are willing to negotiate lower spot pricing on new orders. This week, 71% of participants surveyed by SMU reported mills were willing to negotiate prices on new orders, up from 69% at the last market check (Figure 1). It seems the bump up from 56% a month ago is sticking as the general trend of declining steel prices has continued.

Figure 2 below shows negotiation rates by product. The rate for cold rolled increased one percentage point to 62%; galvanized was up five percentage points to 84%; and Galvalume was up 13 percentage points to 63%.

Here’s what some survey respondents had to say:

“Not (willing to negotiate) on spot (for plate). No.”

“Spot might start opening up (on Galvalume) in a few months.”

“HR galvanized seems to be a better bargain than CR galvanized.”

“Seems like more tons (of hot rolled) will get you a better price.”

“Very limited (on negotiating price for hot rolled).“

Note: SMU surveys active steel buyers every other week to gauge their steel suppliers’ willingness to negotiate pricing. The results reflect current steel demand and changing spot pricing trends. SMU provides our members with a number of ways to interact with current and historical data. To see an interactive history of our steel mill negotiations data, visit our website.