Could supply difficulties pressure prices in US domestic flats market?

Demand levels in the US domestic flats market are relatively unchanged from a week ago, as most buyers have limited their purchasing activity to a buy-as-you-need basis as they wait for the arrival of the large volume orders  placed when spot prices were skyrocketing just a few weeks ago. This lack of order activity is affecting mills' ability to implement their higher asking prices of about $42.00 cwt. ($926/mt or $840/nt) for hot rolled coil (HRC) and $47.00 cwt. ($1,036/mt or $940/nt) for cold rolled coil (CRC).

And so, the ranges for flat-rolled spot prices have not changed over the past week, still settling at about $39.00-$41.00 ($860-$904/mt or $780-$820/nt) ex-Midwest mill for HRC, and $44.00-$46.00 cwt. ($970-$1,014/mt or $880-$920/nt) ex-Midwest mill for CRC. The most commonly reported transaction prices have increased slightly within the above ranges, with the majority of orders now taking place at the higher end of current price levels. Although the slight movement indicates some progression of higher prices, there is still too much uncertainty of the sustainability of $40.00 cwt.-plus HRC for mills to collect their late January-announced increases just yet.

Another possible reason why flat-rolled prices have seen very little movement over the past week: the weather. Order activity has been light this week, and although flat demand levels are the primary reason for the slowed activity, weather conditions are partially to blame as well. The US is currently experiencing one of the harshest winter storm seasons in recent history, which has not only caused concerns over delayed deliveries from mills but also forced some buyers to close their doors for a few days until weather conditions improve.

What may allow mills to collect higher prices in the coming weeks are the current issues in the supply chain. Ontario-based Essar Steel Algoma had to temporarily shut down one of its blast furnaces due to a water leak and weather-related issues on January 25, and just this week, Severstal NA's Dearborn, Michigan operations and US Steel's Great Lakes production had to be halted as well due to a water line failure at the Michigan facility of Praxair Inc., the company which provides both mills the industrial gases necessary for steelmaking operations. With supply being curbed this week, resulting in some lead times possibly being extended outward, buyers in need of product may have no choice but to pay higher prices for late March/early April deliveries.

South of the border, Mexican mills are busy with HRC orders while quickly filling up March order books. But with the exception of Mexico, there is little import activity in the US, but the most recent  data from the Steel Import Monitoring and Analysis system (SIMA) indicates that US ports have been busy with imports arriving in January. HRC imports totaled 184,042 mt in January, a slight (less than 1 percent) increase from December imports of 182,656 mt. Imports from Australia, a major flat-rolled player on the US West Coast, were up 53 percent from 25,754 mt (license data) imported in December to 55,292 mt (license data) imported in January.