Overcapacity fears still plaguing US flats market

As US flats buyers continue to delay purchases, mills are ramping up production, putting added pressure on an already soft market.

US domestic flats buyers have been living hand-to-mouth in terms of spot purchases throughout most of May and June, just as production and capacity utilization rates have been rising. The US mill capacity utilization rate has been fluctuating upward over the last two months, rising to 76.5 percent last week compared to about 73 percent nine weeks prior, and sources tell SteelOrbis that production is currently outpacing demand.  Additionally, flat-rolled mills have notoriously operated at higher capacity rates than the average mill utilization rates, averaging closer to the high 70's/low 80's. The added production has most notably been in the US northeast where previously idled mills, particularly RG Steel's Sparrows Point, have been increasing production.

But decreased US automotive production as a result of a parts shortage in March through June is beginning to slowly rise to normal production levels again, providing a bright spot in the US flats market. Less automotive production created an overabundance of flat-rolled steel just when prices were already beginning to show signs of weakness in late Q1. And with automotive production ramping up once more, the US domestic spot market is expected to tighten somewhat towards the end of Q3, helping to prevent flats prices from sliding too much further.

However, another $20-$40/nt ($1.00-$2.00 cwt. or $22-$44/mt) decline in both hot rolled coil (HRC) and cold rolled coil (CRC) spot prices is still possible in July, as buyers continue to avoid making purchases until the last minute. Since last week, US domestic cold rolled coil (CRC) spot prices have fallen about $0.50 cwt. ($11/mt or $10/nt) to the range of $42.00-$43.00 cwt. ($926-$948/mt or $840-$860/nt) ex-Midwest mill. HRC spot prices are still at previously reported levels of $36.00-$37.00 cwt. ($794-$816/mt or $720-$740/nt) ex-Midwest mill.

Mexican flats offer prices to the US are expected to fall in July as well, as current Mexican prices are too close to US domestic prices to garner much interest. Mexican HRC prices are still $35.00-$36.00 cwt. ($772-$794/mt or $700-$720/nt) DDP loaded truck delivered into Houston, and CRC prices are $42.00-$43.00 cwt. ($926-$948/mt or $840-$860/nt) DDP loaded truck delivered into Houston. Other import offers into the Gulf have been quiet, as Russian mills have essentially priced themselves out of the market; and due to no buyer interest, Russian mills are no longer pushing for orders.

**DDP loaded truck in US West Coast ports