US hot rolled coil prices in freefall

27th January 2022

The US steel market has been through a turbulent time, in the past two years. Hot rolled coil basis values bottomed out at US$450 per short ton during the early months of the pandemic, before peaking above US$1900 per short ton by the end of the third quarter of last year. However, a downward trend developed in the autumn of 2021.

Prices are currently in freefall, with deals being concluded at less than US$1500 per short ton, this month. Further deterioration is anticipated in the near term. This has taken many buyers by surprise. They are now speculating that basis values may fall to, or even below, US$1000 per short ton, in the coming months.

Reduced demand and increased supply, from both domestic and overseas sources, are driving the price decreases. Disruptions to downstream operations, due to a resurgence in Covid-19 cases, are adding to the fall in hot rolled coil basis values. Inventory levels are elevated, across the supply chain.

The negative sentiment in the cold rolled and coated coil market is less severe. Price reductions have been noted, but they are on a much smaller scale than those recorded for the hot rolled feedstock.

Healthy demand and longer delivery lead times than those for hot rolled coil are keeping prices for value-added material elevated. This has pushed the differential between cold and hot rolled coil basis values to a record high of almost US$500 per short ton. This gap is believed to be unsustainable.

It is inevitable that value-added products will, eventually, succumb to the negative pressure currently being witnessed for hot rolled material. Several distributors are offering cold rolled and galvanised coils at reduced prices, as they attempt to offload stocks before any large fall in the market occurs.

A collapse in steel values may result in the bottom of the cycle being reached earlier than previously anticipated by MEPS. US mills may cut output to stem the price decline, in the coming months.

Value-added products are expected to continue to lag the trend in the hot rolled coil segment. Nonetheless, the differential between the two should return to more normal levels by the end of 2022.

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