Flat-rolled steel prices have been on a tear, but a growing chorus of voices is questioning whether there is enough actual demand to support the five mill price increases announced since October.
According to the Steel Market Update Price Index, benchmark hot-rolled spot prices out of the domestic mills had rallied from the low of $470 per ton on Oct. 25 to $630 per ton as of Jan. 23.
SMU’s mid-January survey of steel buyers and sellers reveals widespread skepticism about the staying power of current steel prices. Asked if steel demand can support all the mill price hikes on flat-roll and plate, about 8 out of 10 respondents said no (see chart). The question then becomes—if demand is not supporting the increases and there is new supply coming into the market—are we seeing any evidence of cracks in the pricing floor?
Not as of mid-January. Looking at data on lead times and negotiations from SMU’s survey, there did not appear to be any significant change of direction. Lead times averaged 4.73 weeks on hot-rolled, 7.15 weeks on cold-rolled, 7.09 weeks on galvanized and 7.36 weeks on Galvalume (see chart). Lead times in each product category were extended by almost one week compared to the same time last year. However, they were not as extended as during the April-June 2016 period when prices jumped from the low $400s up to $635 per ton, about the same level as late last month.
Respondents to SMU’s mid-January survey also reported that domestic mills remained united behind their price increases. Less than 23 percent said the mills were willing to negotiate flat-rolled prices on the products SMU tracks (hot-rolled, cold-rolled, galvanized and Galvalume).
February could be the month that all changes. Ferrous scrap, which is used by both EAF (electric arc furnace) and BOF (basic oxygen furnace) steel mills, is starting to see some weakness. Scrap sources tell SMU that a $20 per ton decline is in the offing. If February scrap prices drop by $20 or more, it could restart negotiations between U.S. steel mills and their spot customers.
The dip in the cost of scrap may already be starting to affect the price of finished steel. A few hot-rolled buyers, including one large national distributor, told SMU there was a “new” bottom for hot-roll in late January. Will these numbers spread to other mills competing for spot business? Will the slippage in hot-rolled coil affect cold-rolled and coated prices? Or was this just a minor blip?
Production starting up at Big River Steel in Arkansas and Acero Junction in Ohio (the former Wheeling Pittsburgh and Severstal Mingo Junction mill) is adding capacity to the hot-roll market and could put additional downward pressure on prices. Acero Junction is looking to produce approximately 50,000 tons of hot-rolled coil in the first quarter and 100,000 tons in the second, sources say. Big River Steel began operating its new EAF and hot-strip mill in late December and can be expected to ramp up production into February and March. It also plans to start its cold-rolled and galvanized mills in the coming months.
The SMU Price Momentum Indicator continues to reference higher steel prices. We recommend service centers remain vigilant.
[John Packard is publisher of the Steel Market Update e-newsletter, a provider of steel industry news, pricing, market trends and educational services. SMU will host its annual Steel Summit Conference Aug. 28-30 at Atlanta’s Georgia International Convention Center. The conference will feature economists Dr. Alan Beaulieu of the Institute for Trends Research and Dr. Chris Kuehl of Armada Corporate Intelligence, among other industry experts. For more information, visit www.SteelMarketUpdate.com