Despite the ongoing inventory reduction, US flat rolled demand still isn't strong enough to allow the market to recover even slightly, let alone undergo the "volcanic" recovery that some steel analysts predicted last month.
Still, some buyers say that the overall picture of the US flat rolled market is not too dire, though it seems particularly bad compared to last year's record numbers. All in all, flat rolled business is down 25 to 30 percent from last year, which was a very good year.
However, while demand is sluggish this year, falling far below expectations due to the disappointing state of the US economy, inventories have come down to much more manageable levels in recent months as some sales activity is still taking place. Besides, part of the current slowness in demand can be attributed to the "summer doldrums" which typically occur every year to some extent. US mills are doing their best to prevent further price decay by exporting to Europe - not dumping to the West Coast (as has been done in past years) - and planning maintenance outages for the slow summer months. Even some second-tier mills are now interested in exporting, and this trend is likely to continue as long as US pricing stays low, helping producers to shed some tonnage despite the slow domestic demand.
Nevertheless, the mills haven't been able to completely stall the price slide, with domestic prices for hot rolled coils coming down by approximately $0.50 cwt. ($11 /mt or $10 /nt) in the past two weeks. Domestic hot rolled coil offers range from $24.50 cwt. to $26.50 cwt. ($540 /mt to $584 /mt or $490 /nt to $530 /nt) FOB mill. Domestic offers for cold rolled coils still range from $29.00 cwt. to $31.00 cwt. ($639 /mt to $683 /mt or $580 /nt to $620 /nt) FOB mill. There are some special deals below these levels, but offers from the "top three" producers tend towards the higher end of this range.
The pricing trend for domestic flat rolled remains slightly down, but it is unlikely that prices will fall much further. As a flat rolled service center executive told SteelOrbis this week, "I think we've pretty much reached the bottom." While the market is expected to linger in recession for the next one to two slow summer months, it will most likely start to slowly recover by the beginning of the fourth quarter. A large price hike is not expected, as dramatic price increases in the fourth quarter typically do not take place; prices are expected to firm up modestly in the fourth quarter and into early Q1.
There are very few new import offers for hot rolled coils, and traders are trying their hardest to liquidate the positions they already have on the ground, including some Russian material in Houston, and Australian origin coils on the West Coast. Mexico has been offering HRC to the US sporadically, but these offers are usually too high to be workable. As for cold rolled imports, there have been some new offers heard from China, but even these Chinese offers are typically priced too high to gain any interest. There have been no new galvanized bookings of standard HDG grades, though there have been some offers of special grades of thin and narrow gauge from India at very limited quantities.
Data from the US Import Administration show that during the month of June 2007, the US imported the most HRC from the following countries: Korea at 58,342 mt, Canada at 47,517 mt, Australia at 28,356 mt, Netherlands at 19,593 mt, and Malaysia at 14,072 mt. Final YTD data through May show a total of 1,086,420 mt of HRC imports, compared to 1,954,818 mt for the same period of 2006. YTD, the US' top import sources for HRC have been, in descending order: Canada, Korea, Australia, Mexico, and France.
The most CRC imports in June came from: Brazil at 25,916 mt, Canada at 18,100 mt, China at 14,411 mt, Australia at 13,418 mt, and Mexico at 10,909. Final YTD data through May show a total of 700,196 mt, compared to 1,155,433 mt for the same period of 2006. YTD, the US' top import sources for CRC have been, in descending order: Brazil, Canada, China, Mexico, and Japan.
Globally, flat rolled is showing some slight weakness, with some price softening in the CIS, Europe and China. Still, these markets appear to be stronger than the US market and so no major price decreases are expected in these regions in the near term.