US steel prices surge in September

US steel prices are on a bull run. Following April’s crash, and May/June’s false start, domestic steel producers currently have the bit between their teeth as they look to lift coil prices ever higher. Mill outages, depleted distributor inventories and rising scrap costs combined to propel hot rolled coil prices from US$450 per short ton to around US$600 per short ton, in the space of a few short weeks.

Another reason behind the price surge is a recovery in demand, from both the coronavirus-induced low and for seasonal reasons as the market returns from the summer slowdown. Demand from the automotive sector is strong as auto dealerships run low on new vehicle stocks.

Delivery lead times at the steel mills are extending. Capacity utilisation continues its gradual upward trend and now stands at around 65%, but this figure remains well below pre-pandemic levels. US steel mills are reluctant to bring all their operations back on line, following Covid-19 closures, as large-scale resumptions would likely bring an abrupt halt to the current price recovery.

One obstacle to the existing revival is weak steel demand from the oil and gas industry. Activity in the energy sector remains slow as an upturn in oil prices struggles to gain traction. WTI Crude is trading at around US$40 per barrel, with few short-term drivers to propel it higher.

Financial institutions anticipate an oil supply deficit returning in the third quarter and becoming slightly more pronounced during the final trimester of this year, but oil inventories are expected to remain elevated for an extended period. With the price of oil unlikely to reach pre-pandemic levels in the near future, it is difficult to say when demand from the energy industry will begin to experience noticeable improvement. 

Canadian prices lag behind USA

In Canada, flat product steel prices rose in September, albeit at a slower rate than in the neighbouring US. Demand is increasing with a certain amount of buying taking place to fill gaps in inventories, amid extended mill delivery lead times particularly for hot rolled coil.

A notable pickup in activity in the infrastructure segment is occurring, however, much like in the US market, demand from the oil and gas industry remains subdued. MEPS predicts that Canadian coil prices will continue their upward movement in October, as demand from most end-user sectors is expected to remain firm as we move into the final quarter of 2020.