Notwithstanding softening Chinese market, US flat rolled fundamentals still strong

Tuesday, 15 September 2009 02:58:34 (GMT+3)   |  
       

While US flat rolled mills' full November price increases have yet to be realized in the spot market, producers still seem to have the upper hand, as tight inventories and improved automotive demand continue to drive the market.

Although domestic flat rolled spot prices haven't risen in the past week, buyers say that US flat rolled producers are still late on deliveries, and no mills are breaking ranks on pricing. Lead times continue to stretch out as well.

There are certainly some concerns that when the automotive demand from the “cash for clunkers” program fizzles out, US flat rolled prices mayretract and the market will loosen back up again under the weight of the significant ratcheting up of flat rolled steel production capacities in the last two-to-three months. Furthermore, there are also fears of an aggressive return of Chinese imports now that China's domestic flat rolled market is softening.

For now, however, there are no signs of slowdown for US flat rolled prices; in fact, prices are still trending slightly up as November price hikes start to be absorbed by the market. Domestic Midwest spot offers for hot rolled coil (HRC) mostly range from approximately $28.00 cwt. to $29.00 cwt. ($617/mt to $639/mt or $560/nt to $580/nt); cold rolled coil (CRC) offers range from $33.00 cwt. to $34.00 cwt. ($728/mt to $750/mt or $660/nt to $680/nt); and hot dipped galvanized (HDG) base prices range from about $35.00 cwt. to $36.00 cwt. ($772/mt to $794/mt or $700/nt to $720/nt). These offers are about $1.00 cwt. to $2.00 cwt. shy of mills' announced increases, but mills are reportedly intent on pushing through the full increases, and with most buyers still buying steel on a “hand-to-mouth” basis and import offers remaining virtually nonexistent, there is nothing stopping mills from getting their full increase for November, and potentially even pushing through another price hike before year-end.

Granted, integrated producer US Steel did notify buyers last week that its flat rolled spot prices would remain stable in December, ending the producer's streak of successive price hikes in recent months. However, while some have considered this a sign that the domestic flat rolled market is on the verge of collapse, there are not any impending signs of peril for the US flat rolled market dynamics, which are projected to remain, more or less, steady through the end of the year. Furthermore, US Steel is not a big spot market player, and spot market leader like Nucor, will, as usual, continue to dictate the market pricing. Typical holiday softness is expected to hit the market in November and December, and US flat rolled prices probably don't have that much more leeway to rise this year. But with inventories remaining tight as ever and demand still trending steady to slightly up, a significant weakening of the domestic flat rolled market is unlikely to occur this year – unless it is preceded by a major fallout in scrap or import prices.

In conjunction with China's flat rolled market softening, Asian mills may become more aggressive in their flat rolled offers to the US within the next 30 to 90 days. However, if flat rolled imports come back with a vengeance, dumping case filings are highly likely, according to traders, who remain generally wary of Chinese product. For the time being, China's domestic flat rolled market is still declining, but at at a slower rate than it had been. Nevertheless, if the Chinese market continues to slump, it will likely impact prices in other Asian markets, like India, which are still relatively strong.

Already, there have been some indications of competitive import offers of HDG coming out of second-tier Chinese mills, though import Chinese CRC prices still haven't come down and offers of other Asian HDG sources have yet to decline in response to China. Still, the Chinese slowdown seems to have put a stop to the upward trend that import flat rolled offers had been traveling on for many weeks, putting the overall price trend for import flat rolled offers into neutral gear.

On the whole, there are still next to no import HRC offers for the US -- the only offer heard recently was for some Russian material, which priced out at about $30.00 cwt. ($662/mt or $600/nt) duty-paid, FOB loaded truck in US Gulf ports. On the CRC side, offers from China still calculate to about $34.00 cwt. ($750 /mt or $680 /nt) FOB loaded truck in US Gulf ports, and some Brazilian material is offered for slightly less. India is not competitive on CRC at present.

India is still the main source offering HDG to the US, but prices remain unchanged from recent weeks. The latest HDG offers from India for 0.019” x 48” G90 (0.48 mm x 1.219 m) calculate to approximately $42.50 cwt. to $45.00 cwt. ($937 /mt to $992 /mt or $850 /nt to $900 /nt) duty-paid, FOB loaded truck in US Gulf ports, while India's offers for 0.012” x 40.875” G30 (0.30 mm x 1.04 m) range from $43.50 cwt. to $46.00 cwt. ($959 /mt to $1,014 /mt or $870 /nt to $920 /nt) duty-paid, FOB loaded truck in US Gulf ports.

There are also some import offers from Taiwan and Korea on HDG but they are not particularly competitive. As regards the import HDG market and, to some extent, the entire US flat rolled market, all eyes are now on China as the market waits to see just how competitive and prevalent Chinese offers may become in the coming weeks.

Item

US domestic spot price

From Last Week

From last month

Pricing Trend

Comments

HRC

$28.50 cwt. ($628/mt)

No change

Up $4.50 cwt. ($99/mt)

J

Ex-mill, Midwest

CRC

$33.50 cwt. ($739/mt)

No change

Up $2.50 cwt. ($55/mt)

J

Ex-mill, Midwest

 


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