US steel price scales begin to tip
US hot rolled coil prices climbed during March and April, following Russia’s invasion of Ukraine on February 24, 2022. This halted a negative price trend, which had lasted for six months.
Many buyers panicked about supply shortages and, consequently, purchased excessive quantities. The feared scarcity of steel products in the market, however, failed to materialise. The effects of the war were overblown. Availability, particularly of coil, is now improving.
Demand is starting to slow, but remains healthy in most end-user sectors. Distributors and service centres are purchasing reduced volumes due to their elevated inventories. Output in the US automotive sector is below pre-pandemic levels. This is resulting in reduced mill order books and shortening delivery lead times.
Growth in domestic supply is having an adverse influence on import volumes, which are now reducing. High freight costs and long shipping times from Asian suppliers are acting as a deterrent for many US buyers. Third country producers closer to home are less competitively priced.
However, more attractive quotations are likely to be presented if the differential between US prices and those in other countries widens. Traders already report an increased number of offers received from mills in Europe.
Consumer spending may be restricted by the growing levels of inflation and rising interest rates. This would have a negative impact on steel demand, as the year progresses. Many companies are already factoring in a potential drop in sales volumes, when evaluating their steel inventories and purchasing requirements for the second half of this year. This, coupled with increased coil and sheet production capacity coming on stream during this time, may create oversupply pressures.
Activity in the US market remains stronger than that in Europe and Asia. Nevertheless, clouds are forming on the horizon. MEPS detects growing potential for a “buyers’ strike”.
Declining raw material expenditure is likely to add to the uncertainty in the market, with scrap costs falling – albeit from post-recession highs. A number of purchasing managers anticipate that hot rolled coil basis prices will fall below US$1000 per short ton, in the coming months.