A challenging year ended on a strong note, reports Steel Market Update.
Flat-rolled steel prices finished 2020 on an incredible high – a seemingly impossible recovery from the incredible low seen in the spring when the coronavirus hit the U.S. economy.
As of mid-December, the benchmark price for hot-rolled steel was fast approaching $900 per ton, double the low seen in mid-August. For a market to rebound so far in just four months is unprecedented. Hot-rolled coil prices continue to set records in terms of the speed of this price cycle, reported CRU, Steel Market Update’s parent company.
The basic explanation for this unexpected turnaround is a lesson in the laws of supply and demand. Steel consumption has bounced back at a faster pace than available supply. Not only has demand risen, but these gains have come at a time when inventory levels were historically low and needed rebuilding to support the rising demand.
The steel mills were quick to idle furnaces and curtail production in the second quarter when the government ordered the shutdown of nonessential businesses to curb the spread of COVID-19. Since then, they have been strategically judicious in how quickly they bring that idled capacity back. In addition, various mills experienced unplanned outages that further disrupted production. Combined with duties and tariffs that have discouraged imports, steel supplies tightened to the point where some buyers were willing to pay a big premium to secure desperately needed raw materials.
Steel prices have gotten so high that foreign material is now competitive, even with the tariffs. Many buyers have begun seeking alternative sources outside the country to meet their steel needs. SMU’s survey of the market Dec. 7 to 9 revealed roughly one-third of buyers had already ordered foreign steel, and one-third planned to purchase foreign, while only one-third intended to continue sourcing domestically. “Foreign steel is growing in popularity,” said one respondent. “Some players are desperate and must buy at almost any price. I haven’t seen a market like this in over a decade.”
There were some blockbuster deals in 2020 that changed the steel landscape. Mining company Cleveland-Cliffs acquired two of the market’s biggest integrated mills – AK Steel and ArcelorMittal USA – making it the largest producer of steel sheet, plate and slab in North America. U.S. Steel, the old-line integrated steelmaker, acquired Big River Steel, the newest and most modern EAF minimill, with the intent to pursue a unique “best of both” strategy. These marriages of raw materials supplier, traditional blast furnace steelmaker and scrap recycler have further blurred the competitive lines in the marketplace, making 2021 that much less predictable.
It’s just a matter of time before steel supplies, and therefore prices, begin to normalize. The question is when. This year should see increased steel production that eases the tight supply. Recent capacity additions include the November startup of the new electric arc furnace at Big River Steel in Osceola, Ark., which doubles the mill’s capacity. U.S. Steel announced in early December it was restarting the No. 4 blast furnace at its Gary Works facility in Indiana. Similar announcements by other mills are expected to follow.
CRU estimates mill capacity increased nearly 18 percent by fourth-quarter 2020 from second-quarter levels. However, over the same period, apparent net consumption climbed 21 percent, helping to explain the supply-demand imbalance that has driven steel prices so high. CRU forecasts supplies will rise at a faster pace than demand in 2021 and that steel prices will peak in mid-first quarter. In the meantime, there remains the potential for hot-rolled sheet to surpass the rare $1,000-per-ton mark last seen in 2008.
John Packard is president and publisher of Steel Market Update and Tim Triplett is SMU executive editor. Steel Market Update’s mission with its newsletters, website, conferences and educational programs is to inform, educate and motivate those in the flat-rolled steel industry. For more information, visit www.SteelMarketUpdate.com
SMU Upcoming Events
SMU is working in partnership with Port Tampa Bay to host the 32nd annual Tampa Steel Conference on Tuesday, Feb. 2. The 2021 event will be on a virtual platform similar to the SMU Steel Summit Conference produced in 2020. The day-long program will include a variety of topical speakers as well as a speed networking session. For more details and to register, visit www.TampaSteelConference.com.
SMU will also host a number of steel training workshops in 2021, including the popular Steel 101: Introduction to Steel Making & Market Fundamentals Workshop, plus new workshops on hedging steel price risk, all done in a safe, virtual format. The next Steel 101 is scheduled for Feb. 9-10. Steel Hedging 101: Introduction to Managing Price Risk will be held on Jan. 26-27, and Steel Hedging 201: Advanced Strategies & Execution workshop will be held on Feb. 23-24. For more information and to register, visit www.SteelMarketUpdate.com or email Info@SteelMarketUpdate.com.