US Steelmakers Announce Second Round of Price Hikes, But Will They Stick?

US steel producers increased their list prices, in the past few days. This follows an initial announcement, in late April/early May, when domestic mills attempted to draw a line in the sand to halt the recent freefall in steel selling values. Coronavirus lockdown measures had led to a sharp reduction in demand. Local steelmakers cut their output, with capacity utilisation rates falling to near 50 percent.

So far, steel buyers have accepted a proportion of the first list hike proposal, but prices remain below those recorded in mid-April. Scrap costs have started to increase, and this may provide the impetus for an upward trend in the flat rolled market. MEPS received reports that several companies are failing to meet their minimum contractual obligations with the steel producers. However, orders on the mills are being pushed out rather than cancelled.

Expectations for a Q4 recovery

A recovery in the US steel market is expected by the fourth quarter of 2020, but this will depend on how quickly the consumer market responds to the easing of the Covid-19 restrictions. The automotive, oil and gas, agricultural and construction sectors have all been hard hit since March. Nonetheless, positive signs are noted. The US government recently stated that it intends to fast track capital expenditure projects, with the aim of stimulating growth in the manufacturing and construction segments. This has the potential to pull the anticipated recovery forward, into the third quarter.

Recently, many automotive plants have tentatively begun operations. This will positively affect the steel industry. However, a slow upturn is expected in the steel market, due to decreased consumer demand. Consequently, many headwinds remain for US steel prices.

Companies operating post-lockdown are compelled to implement revised health and safety procedures. This will require structural changes in operations and will affect how companies conduct business, both internally and externally.

Positive sentiment in Canada despite Covid-19

Although the current pandemic has negatively affected Canada’s steel sector, a more positive sentiment among market participants is noted, in comparison with their southern neighbours. The weak Canadian dollar and the high percentage of non-cancelled orders have, in part, protected domestic prices, particularly for long products. Nevertheless, decreases in steel selling values were recorded, over the past month, due to the threat of imports from both US and Asian suppliers. Reports indicate that US mills have been aggressive with sales into Canada, in a bid to fill their order books.

The closure of automotive plants and oil and gas exploration is having a severe impact on demand in the Canadian market. The province of Alberta, which relies heavily on oil and gas extraction, has been hit hard recently. Nonetheless, forestry mills are beginning to reopen, due to increased demand for paper products. Furthermore, vehicle manufacturers are expected to resume operations, in the short term.

The manufacturing sector’s confidence index rose slightly, in May, compared with the April figure. Demand in the construction industry remains reasonably good, as work continues on ongoing projects. New tenders have been on the increase in this segment. However, due to uncertainty, concerns are detected that the awarding of these tenders may be delayed.

Steel buyers remain cautious and are adopting a wait and see attitude. The widely agreed sentiment in Canada’s steel sector is that, although signs of an improvement are evident, the recovery will be slow to materialise.