US flat rolled mills have managed to keep prices stable for another week, yet there are increasing concerns that the market will start to erode come November/December, with hot rolled coil (HRC) being the weakest link.
Domestic flat rolled producers were never able to hit the $30.00 cwt. ($662/mt or $600/nt) mark for HRC that they initially set out to reach in for November/December shipments back in early September when, after several months of continued price hikes, such a feat may have seemed easily achievable. And now, as domestic steel production has increased considerably in the last couple months and mills are starting to catch up on all of their third quarter deliveries, there are fears that flat rolled prices could drift even further downward within the next couple months as mills start to make deals in order to pad their order books.
With the slow holiday season just around the corner and inventory replenishment activity from service centers slowing down considerably, US flat rolled prices have almost certainly peaked for the year and may trend slightly down in the typically quiet months of November and December. This month's approximate $30/long ton decrease in US domestic busheling scrap prices will put downward pressure on prices over the next month as well.
For now, most domestic HRC spot offers continue to range from approximately $27.00 cwt. to $28.00 cwt. ($595/mt to $617/mt or $540/nt to $560/nt) ex-Midwest mills, while most CRC offers still range from $32.00 cwt to $33.00 cwt. ($705/mt to $728/mt or $640/nt to $660/nt) ex-Midwest mills. CRC is currently the stronger product as there are less domestic production lines dedicated to CRC.
Although US flat rolled prices may retreat somewhat in the next couple months, no major decreases are expected, as inventories remain relatively tight -- the latest data from the Metals Service Center Institute (MSCI) show that US service center inventories at the end of September were three percent higher than at the end of August, but were down 45.7 percent lower than in September 2008 -- and there are still very few import tons being booked.
Furthermore, despite ramping up production in recent months, mills are well aware of the detrimental effect that excess capacity can have on pricing, and are prepared to take some of these recently activated capacities offline again if necessary. US Steel has already confirmed that it will temporarily take the blast furnace at its Gary, Indiana works offline in December, and we will likely see further Q4 blast furnace idlings as well. Therefore, while there may be some seasonal softening in store for the US flat rolled market, a major price slide is unlikely. Moreover, as long as inventories stay low, there is a good chance of another upswing getting underway by early spring of next year.
On the import side, Mexico continues to be the main source offering HRC to the US, with most offers ranging from approximately $25.00 cwt. to $26.00 cwt. ($551/mt to $573/mt or $500/nt to $520/nt) delivered to the border crossing.
Mexico is also somewhat active on CRC, and continues to offer at about $30.00 cwt. to $31.00 cwt. ($661/mt to $683/mt or $600/nt to $620/nt) delivered to the border crossing, while Brazil's offers remain at around $34.00 cwt. to $36.00 cwt. ($750/mt to $794/mt or $680/nt to $720/nt) duty-paid, FOB loaded truck in US Gulf ports.
Meanwhile, India's and China's CRC offers for the US have declined by about $1.00 cwt. ($22/mt or $20/nt) since last week, but offers are still above the US domestic level, with most prices from these sources currently at around $34.00 cwt. ($750/mt or $680/nt) duty-paid, FOB loaded truck in US Gulf ports.
In general, despite some competitive offers from Mexico and some slight softening in offshore offers, there is still very little US interest in buying import HRC or CRC. With the market outlook remaining somewhat uncertain, buyers are generally not interested in taking on the added risk of buying import material that will not arrive for several months, especially now that the market seems to generally be headed in a downward direction.