Final Thoughts

Written by Michael Cowden

Flat-rolled steel prices continue to fall, but the market participants I spoke to today were taking the news in stride.

SMU’s average hot-rolled coil price now stands at $1,480 per ton ($74 per cwt), down $55 per ton from $1,535 per ton a week ago and down $475 per ton from a 2021 high – recorded in September – of $1,955 per ton.

How nuts is that? Consider this. A decline of that magnitude in 2015 – HRC prices were $440 per ton in early September of that year – would have sent steel prices into negative territory.

The bigger question is not over the direction of U.S. prices, which need to find a better equilibrium with world prices, but instead about the state of demand.

One manufacturing executive I spoke to said that his company planned to seek a $250-300 per ton discount in base prices when it negotiates new pricing levels with domestic mills for spring tons. It wasn’t lost on him just how ridiculous such a stance would have been in any other year.

“I’ve been in this business for a while, and I can remember saying (to mills), ‘What, you want to go up $25 per ton?! That’s crazy!”

But he said his company had seen even more substantial drops in the excess prime and secondary markets for certain coated items – as much as $600 per ton over approximately the last six weeks.

The result: His company is buying only as needed until the spring. “We think our inventory is a little heavy, and we want to bleed it down because you don’t want to be stuck with any higher priced inventory any longer than you have to be,” he said.

But not all steel prices are falling. Wire rod prices, for example, are up even in the face of prime scrap dropping $60 per ton. And pointing out that scrap has fallen in a big way won’t get you a better price on rod from U.S. mills, he noted. Rod mills aren’t willing to negotiate.

What makes such mixed market dynamics and price volatility palatable? A sauce of good demand, as I’ve noted before.

The manufacturing executive said he was concerned about the long-term prospects of markets closely linked with consumer spending – especially should inflation continue to rise. “Maybe you got a 4-5% salary increase. But that’s not doing you much good if you’re paying 7-9% more for food and electricity,” he noted.

That worry aside, bookings at his company were strong in November and December, and January is off to a good start. A bigger risk than falling prices, now baked into most forecasts, is the potential for them to whipsaw upward if too many steel buyers re-enter the market at the same time. “Buyers are going to sit on their hands for a while, and then we’re all going to wake up one day and say ‘I’ve got to order!’ – but that won’t happen for a while now,” the manufacturing executive said.

Not everyone is so sanguine about the current market.

An executive at a Midwest service center said his company ended the year strong, with customers booking aggressively through December. Demand to date in January is still good by historical standards, but it’s off from the torrid pace seen in late 2021.

The most likely culprit – buyers, like service centers, now have plenty of inventory and so are delaying purchases. Also, scrap prices being down $60 per ton – and the big headlines that generated – might have given some additional reason for pause, he said.

“My expectation is that demand will remain robust. If it doesn’t, that will be surprising,” the Midwest service center source said.

That’s in part because his company, which has an important portion of its business in plate products, is seeing firm pricing – in the $1,800s per ton – from domestic plate mills.

Plate has been somewhat immune to the big price drops in coil. But the jury is still out on whether plate can continue to defy sheet’s gravity.

A service center source in the Ohio Valley agreed that fob mill plate prices were in the mid- to low-$1,800s per ton.

But he said material from the Commonwealth of Independent States (CIS) and South Korea was available for late March/early April delivery to the U.S. in the low $1,400s per ton – something that could pressure U.S. plate prices later in the first quarter.

Some of those tons could be shipped directly into the Great Lakes while additional volumes could come upriver from Gulf Coast ports, he said.

A similar situation has already played out in sheet, with import offers effectively putting a ceiling on domestic prices.

Speaking of sheet…

Steel Wars

By now we’re guessing you’ve all read the news. U.S. Steel is building its new EAF sheet mill near Big River Steel, which is to say in Nucor’s backyard. And Nucor looks set to build its new EAF sheet mill in West Virginia – not all that far from U.S. Steel headquarters in Pittsburgh, which also happens to be where the United Steelworkers (USW) union is headquartered. West Virginia is also close to U.S. Steel’s Mon Valley Works near Pittsburgh and to JSW Steel USA’s mill in Mingo Junction, Ohio. The Tri-State area is suddenly a very crowded neighborhood when it comes to steel.

We don’t want to belabor the obvious symbolism here. Is Nucor gunning for the symoblic last bastion of integrated steelmaking? Can U.S. Steel transform itself – via Big River and its latest expanion – into an EAF “mega mill” capable of taking and holding ground deep in Nucor country?

And where will all the scrap to fuel this fight come from? Speaking of scrap…

Final January Scrap Prices

With the scrap trade just concluded for January, the market has settled at down $50-60/GT, depending on the region and grade, as reported in Sunday’s Steel Market Update while negotiations were ongoing. Ohio was down $60 across the board, but areas in the East and South were down $50. That puts the Midwest busheling price at approximately $540/GT, the shred price at $475/GT and HMS at $425/GT, sources report.

Thanks for your time and for your business. It’s appreciated by all of us at Steel Market Update.

By Michael Cowden,

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