Nov. 26, 2014

U.S. Market Leads the World in Flat-Roll
 
The United States remains the best market for flat-rolled steel, a trait that brings both opportunities and challenges for the supply chain. Steel demand will increase in 2015, but the price of the material is likely to decline, said Josh Spoores, principal consultant for steel at CRU, which hosted its annual North American steel conference earlier this month in Chicago. CRU forecasts that steel sheet demand will increase by 4.1 percent next year, after seeing 3.9 percent growth in 2014.

Of the major consumers of flat-rolled steel, automotive led the increase in 2014, followed by manufacturing and construction. CRU expects that to flip next year, with construction showing gains of more than 5 percent, followed closely by manufacturing. Auto steel is still expected to grow, but by just 1 percent.

Overall, North American steel shipments grew by 4.6 percent this year, though that number came with an inventory buildup of 7 percent from 2013. Steel inventories may increase further in the coming months as the healthy U.S. economy attracts more imports. Indeed, imports have already started to put pressure on steel prices, Spoores said.

Pricing spiked in mid-2014 due to a combination of strong domestic demand and some early-year production issues that tightened supply. The price of hot-rolled coil peaked at $658 per ton in 2014, exceeding CRU's forecast. Analysts expect the price to slip back to $625 in 2015, the result of lower-priced imports.

While North American prices increased 7 percent in 2014, China's price fell 10 percent and Germany’s price dropped 6 percent. Such price spreads invite greater import penetration.

“When you look at importing steel, you really have no risk now with the price spread at $150 over Europe and $200 over China,” Spoores said. “Prices here could drop quickly and you’d still be sitting pretty well, as long as the steel comes in quickly and with the necessary quality.” Steelmakers can also survive a dip in prices, as their raw material costs remain almost $100 below the price of hot-rolled coil, he added.

Such a dip is likely. Flat-rolled steel imports are up an astounding 64 percent in 2014, compared to the average of the preceding three years, Spoores said. His group expected to see imports peak in mid-summer, but each succeeding month kept producing new highs. “October may be the peak, but imports will remain uncomfortably high going forward.”

The domestic industry has responded by filing various trade cases and more are likely in the future. The threat of trade action is starting to have an effect, prompting more imports of value-added steel products. “We’re already hearing of some OEMs bringing in processed slit coils from Europe,” Spoores said.

The threat of antidumping cases, plus the effects from recent mill consolidations, will work to prevent pricing from slipping too much, Spoores said. He believes the shakeup in the North American mill scene—including ArcelorMittal and Nippon Steel’s purchase of TK's Calvert, Ala., plant, Nucor's acquisition of Gallatin, and Severstal’s sale of its assets to Steel Dynamics and AK Steel—will be felt more strongly in 2016. “I think 2015 is going to be more of a transition year for this consolidation,” he added.

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