Fragile US domestic flats market trends further downward

Domestic US flats prices have softened since our last report a week ago, as current demand levels are still not in sync with production.

The current capacity utilization rate is now at 67.2 percent, but many say those numbers need to come down further for prices to rise to "normal levels". Nevertheless, while production cutbacks are slow, mills are definitely cutting back, as existing production for week 42 is 1.624 million nt; 88,000 nt less than four weeks ago, and the lowest level since week five of this year.

Spot prices in the domestic hot rolled coil (HRC) market have come down about $0.50 cwt. ($11/mt or $10/nt) over the past week and are now being reported in the approximate range of $26.00-$27.00 cwt. ($573-$595/mt or $520-$540/nt) ex-Midwest mill with the potential for buyers to get below the average ranges depending on the delivery location, and for orders with excess tonnage. Furthermore, mills have been increasingly waiving some costs of extras and discounting freight rates on substantial bookings to help keep their market share. 

Domestic cold rolled coil (CRC) spot prices have also slipped, coming down $1.00 cwt. ($22/mt or $20/nt) on the low end with more and more buyers getting quoted at the lower end of the range, at around $31.00 cwt. ($683/mt or $620/nt) ex-Midwest mill.

Overall, booking activity has been sporadic in past weeks despite the cooling prices, as buyers have been forecasting current numbers could drop yet again-"you place an order Friday, and you're afraid of what's going to happen on Monday" said one East Coast buyer. But with domestic HRC spot prices hovering around $26.00 cwt. ex-mill if not lower, and CRC spot prices dangerously close to approaching $30.00 cwt. ($661/mt or $600/nt) ex-mill, many believe that the US domestic flats prices are about as low as they can possibly go purely based off raw material costs, and orders could pick up in the coming weeks from buyers afraid to miss out on bottomed-out prices. Furthermore, with the upcoming US elections, the potential for a major political party shift in Congress could raise the confidence levels in both buyers and sellers, sparking increased order activity in the process.

Not only would increased activity translate into increased bottom lines, it could also bode well for lead times, which have been hovering around two to three weeks for both HRC and CRC.  And if lead times extend outward, which some mills have already initiated, downward pricing trends will have a stronger likelihood of shifting toward a more positive direction.

Looking offshore, ports remain relatively empty, and while China CRC offers have declined approximately $1.00 cwt. since last week, their current range is not even close to being competitive for the time being.  On the other hand Mexico has stayed aggressive and lowered its sales prices for both hot and cold rolled products to more closely mirror US offers.