While the US hot dip galvanized (HDG) market has yet to bottom out, with inventory levels continuing to slide a big recovery is still expected to take place once demand starts to improve, even minimally.
Although demand for HDG, and for flat rolled products in general, is still quite low due to the depressed economy, the shrinking supply levels in the market likely hold the key to the market's eventual recovery. The latest Metal Service Center Institute (MSCI) shipment and inventory report shows that US service centers' month-on-hand inventory levels dropped to 3.0 months in January (from 3.6 months in December), representing the first decrease in month-on-hand inventory levels since April 2008. Inventories have been shrinking on a tonnage basis for several months, but the month-on-hand figure is more important as it takes shipment levels into consideration. This is a very positive sign for the flat rolled market.
Additionally, though industrial production has slowed, led by the plunge in auto production (the latest data show US industrial production fell 1.8 percent in January), industrial manufacturers are also reporting lower steel inventory levels. It seems that US manufacturers have fully adjusted their flat rolled purchases in line with their reduced production, and will not start to build inventory again until their production starts to increase as well. The reduced industrial production obviously means less flat rolled consumption; however, inventories have declined to such a level that prices do not have much further room to decline. Furthermore, once demand starts to pick up, even slightly, because of the lack of supply in the market, prices could rise exponentially.
Alas, for the short term, the pricing trend for US HDG is still slightly down, as demand remains weak and mills still have some excess material resulting from their slightly increased output from last month. The mills had expected an up-tick in January, and had adjusted production accordingly, but when the improvement in business didn't happen, they had some excess material that had to be marked down. On the bright side, sources say this excess material is almost gone and with mills' re-adjustment in production as well as the price declines that took place in recent weeks, domestic HDG prices probably won't dip too much lower than the current level.
At the same time, many buyers are still sitting on the sidelines in anticipation that prices have at least a little more room to drop before bottoming out. While some further slight softening is probably in the cards for domestic flat rolled, the period of large price decreases is more than likely behind us.
For now, most domestic offers of the most commonly produced domestic HDG item, 0.019" x 48" G90 (0.48 mm x 1.219 m), have remained stable since last week at a range of $38.00 cwt. to $40.00 cwt. ($838 /mt to $882 /mt or $760 /nt to $800 /nt) FOB Midwest mills. Domestic prices for 0.012" x 4.875" G30 (0.30 mm x 1.04 m) range from about $36.00 cwt. to $38.00 cwt. ($784 /mt to $838 /mt or $720 /nt to $760 /nt) FOB mill. Domestic 0.012" G30 prices are also stable from last week, although they decreased significantly in recent weeks as domestic mills started to produce more of this light gauge item in order to compete with imports.
Domestic galvalume (0.019" x 41.5625" Gr80/AZ55) offers have remained flat since last week also, though SteelOrbis hears that demand for this product is particularly weak, with very few transactions taking place. Most 0.019" AZ55 offers from domestic mills range from $39.00 cwt. to $41.00 cwt. ($860 /mt to $904 /mt or $780 /nt to $820 /nt) FOB Midwest mills.
On the import side, HDG prices have slid further since last week as foreign mills compete with each other for business and traders are, in many cases, accepting lower profit margins in order to get business. Mexican offers of 0.012" G30 items have decreased by about $2.00 cwt. ($44 /mt or $40 /nt) since last week and Taiwanese offers of the same item have dropped by $1.00 cwt. ($22 /mt or $20 /nt), on average, since last week. Meanwhile, India, the only import source offering 0.019" G90 competitively to the US, has lowered its prices sharply, with offers falling by as much as $5.00 cwt. ($110 /mt or $100 /nt) since last week.
Notably, China has yet to return to the US import HDG market with competitive prices, since, despite some recent softening in China's domestic flat rolled market, Chinese prices are still much higher than those of other sources and mills are seeing enough domestic demand that they have no urgency to lower their prices to get import business.
Current import offers for 0.012" G30 items are as follows: Mexico: $36.00 cwt. to $38.00 cwt. at the border crossing; Taiwan: $36.00 cwt. to $38.00 cwt. duty-paid FOB loaded truck in West Coast ports; India: $35.00 cwt. to $37.00 cwt. ($772 /mt to $816 /mt or $700 /nt to $740 /nt) duty-paid FOB loaded truck in US Gulf ports.
Import offers of 0.019" G90 from India currently range from $33.00 cwt. to $35.00 cwt. ($728 /mt to $772 /mt or $660 /nt to $700 /nt) duty-paid FOB loaded truck in US Gulf ports.
Import offers of galvalume (0.019" AZ55) have dropped about $1.00 cwt. across the board since last week, with offers from Taiwan, India and South Korea now ranging from approximately $38.00 cwt. to $40.00 cwt. duty-paid, FOB loaded truck in Gulf and West Coast ports.