Are US domestic HDG prices reaching their peak?

The latest price increases in the US domestic hot-dipped galvanized (HDG) market have created nervous buyers and slowed order activity.

Inventory replenishment is coming to a close as most coated distributors are sitting on sizeable inventories for Q1, and are choosing to halt purchasing activity for the next few weeks until they are confident they can pass along higher prices to their customers on tonnage booked in late December/early January, and prices won't be on the decline by the time orders placed today arrive.

The most recent $40-$50/nt price increases, depending on the mill, have put asking prices for HDG and Galvalume base products at $47.00-$47.50 cwt. ($1,036-/$1,047mt or $940-$950/nt) ex-Midwest mill, a $2.00-$2.50 cwt. ($44-$55/mt or $40-$50) increase over most mills' benchmark prices a week ago. The most commonly reported spot prices for HDG and Galvalume base have not increased as drastically but are up approximately $1.00 cwt. ($22/mt or $20/nt) since last week to $45.00-$47.00 cwt. ($992-$1,036/mt or $900-$940/nt) and $45.00-$46.00 cwt. ($992-$1,014/mt or $900-$920/nt), respectively, ex-Midwest mill, with the majority of transactions still being reported at the lower end of the ranges.

Mills' inability to implement the late-January increases as quickly as the previous six may be a sign that coated market prices are close to hitting their peak. There is uncertainty as to whether or not mills will garner the full increase at all since the availability of March delivery remains high, yet order books for April have already opened, concerning flat-rolled market players that the most recent increases have not been a reflection of demand levels but rather an attempt by producers to give buyers the impression that demand levels have not tapered off in recent weeks, and lead times are moving out faster than in actuality. The notion is furthered by talks of yet another increase looming for February regardless of whether scrap prices go sideways or decline, as predicted.  

A lack of confidence in the US market is affecting orders placed at offshore mills as well, and US market volatility has resulted in fewer import tons being booked this week. Import prices are still too high for serious consideration for buyers in the Midwest and East Coast. On the West Coast however, traders indicate that a number of coated products from Chinese mills have been booked at the lower numbers offered over the past three-to-four weeks.