Spot prices in US domestic flats market to rise in the short term

With a price increase for May expected at any moment, flat rolled spot prices are poised to continue to increase well into Q2.

After closing April order books in mid-February, West Coast flat rolled mills have opened up books for May delivery this week. Spot prices from West Coast mills for May shipment are up approximately $3.00 cwt. ($66/mt or $60/nt) from what spot prices were for April delivery, and now range from $46.00-$48.00 cwt. ($1,014-$1,058/mt or $920-$960/nt) for hot rolled coil (HRC) and $51.00-$53.00 cwt. ($1,124-$1,168/mt or $1,020-$1,060/nt) for cold rolled coil (CRC), both ex-West Coast mill. And order books, which closed in about one week for both March and April deliveries, are expected to fill up quickly for May as well.

Ranges for flat rolled spot prices in the Midwest are unchanged from last week, still $43.00-$45.00 cwt. ($948-$992/mt or $860-$900/nt) and $48.00-$50.00 cwt. ($1,058-$1,102/mt or $960-1,000/nt) for HRC and CRC, respectively, both ex-mill, although most orders are being placed at the higher end of the ranges, and offers on the lower end may only be available until week's end. With most Midwest mills getting their full asking prices for April delivery and order activity still steady, another price increase announcement from Midwest mills is expected any day now.

But whether or not another price increase has any real staying power is up for debate. The next price increase will give another small boost to flat rolled prices temporarily in April (for May and June deliveries), particularly because demand from service centers is still strong. According to the most recent data from the Metal Service Center Institute (MSCI), service centers shipped an average of 101,800 net tons of flat rolled steel per day in February-while this represents a 6.3 percent decline from daily shipments in January, it is still higher than daily shipments from any other month in 2009 or 2010. In February, flat-rolled month-on-hand inventories stood at 2.3 months.  Distributor sources also indicate that many are still consistently making spot orders to fill inventory holes.

Nevertheless, the sustainability of HRC and CRC upwards of $45.00 cwt. and $50.00 cwt., respectively, in the long-term is unlikely. Capacity utilization levels at domestic mills have been on an incline since the final weeks of 2010-up to 75.5 percent last week (ended March 11) after a slight decline in the previous week (ended March 4). And although demand levels are steady, they have not caught up to mill utilization levels. Additionally, flat rolled spot prices will face downward pressure in mid-to-late Q2 once operations at Sparrows Point, Maryland are restarted this spring- previously laid-off workers received notice Thursday that the blast furnace, as well as the hot strip mill, is set to be in operation by May.

On the import side, since US flat rolled spot prices will continue to increase through the end of March and into April, inquiries into competitively-priced offshore product are growing. Mexican HRC and CRC offers are still the most often-booked at $40.00-$42.00 cwt. ($882-$926/mt or $800-$840/nt) and $46.00-$47.00 cwt. ($1,014-$1,036/mt or $920-$940/nt), respectively, both FOB loaded-truck delivered into Houston ports. However Russian offers for HRC and CRC at $40.00-$42.00 cwt. ($882-$926/mt or $800-$840/nt) and $45.00-$47.00 cwt. ($992-$1,036/mt or $900-$940/nt) duty-paid FOB loaded truck in US Gulf ports are capturing the most interest from traders, as finding deals being made below the above ranges are not uncommon, and the longer lead times from Russian mills may be beneficial if US domestic prices begin to slide in early Summer. Still, despite a sharp increase in interest into imported product, actual booking activity is still only steady and traders indicate that most buyers are only "price checking" to see what's available, but few are investing in large-tonnage orders offshore.

**Duty-paid FOB loaded truck in US Gulf ports