US steel prices - the sky’s the limit?

US buyers are taking a break from the current dizzying surge in steel prices, but as they tuck into their Thanksgiving meals, many will be wondering what awaits them on their return to the negotiating table.

Following a rapid recovery over the past three months, the price of hot rolled coil had reached US$700 per short ton by mid-November – up more than 50 percent from its August low point. Several US producers are now said to be quoting US$840/850 per short ton for new orders. So, what is behind these eye-watering price rises?

The imbalance between supply and demand is without doubt the main driver of US steel prices, at present. With restricted availability, the scales have firmly tipped in the mills’ favour.

Steelmakers undertook substantial production cuts amid the Covid-19 pandemic, and both distributors and end-users allowed their inventories to be run down. As demand has started to recover, many steel buyers need to restock, but they are finding that the mills simply do not have the material available to sell, as demonstrated by ever-extending delivery lead times.

US capacity utilisation – currently standing at 71.5 percent – continues to creep up but this remains much lower than in the same period last year. Until steelmakers lift their output to match current demand, prices are likely to continue moving higher.

Scrap and other mill input costs have only increased modestly, in recent months. Furthermore, at this time of year, a traditional slowdown in market activity would be expected. It is clear, however, that at the present time, US steel basis values have firmly disconnected from both raw material costs and seasonality, two factors which typically have a strong influence on prices.

Canadian steel shortages persist

Following the trend south of the border, Canadian flat product domestic prices increased, in November. Much like in the US, shortages exist in this market, exacerbated by the recent furnace reline at Stelco and the unfortunate cyberattack. Supply disruptions from ArcelorMittal and Algoma have also occurred. Imports are increasingly becoming attractive for Canadian buyers, due to the rapid rise in local prices and lack of domestic availability.

Service centres and distributors continue to replenish their stock levels, but they report a noticeable weakening in demand. Several suggest this slowdown is for seasonal reasons, while others raise concern that sales to the OCTG sector continue to be poor.