US domestic HDG market struggles to absorb latest round of increases

While base prices for hot dipped galvanized (HDG) products continue to steadily rise in line with recent increases, the cost of some coating extras have just barely inched up.

With the January 6-announced $3.00 cwt. ($66/mt or $60/nt) increase on flat-rolled products, the US domestic spot price of HDG and Galvalume base products has hit most mills' benchmark asking price of  $45.00 cwt. ($992/mt or $900/nt) ex-Midwest mill, although numerous bookings below $45.00 cwt. are still available. And after reportedly filling March order books last week, ArcelorMittal USA has hiked its HDG base price to $46.00 cwt. ($1,014/mt or $920/nt).

The pace of spot prices for coating extras, however, has not been as steady and spot prices on the HDG 0.012" x40.875" G30 product remain unchanged since last week, even though the base price has increased approximately $3.00 cwt. The discrepancy is likely due to hedge buying over the past few weeks; with many distributors already sitting on sizeable tons of the light gauge material for the upcoming months, mills are encountering higher resistance from buyers unwilling to pay upward of $55.00 cwt. ($1,213/mt or $1,100/nt) ex-Midwest mill.

On the other hand, spot prices for HDG 0.019"x48" G90 and Galvalume 0.019x41.5625 Gr80/AZ55 have increased since our last report a week ago due to higher demand for the products, which is a result of less futures buying over the past few weeks; the full $3.00 cwt. increase has not yet been absorbed by the market, however, and buyers are not encountering much trouble negotiating lower prices for higher tonnage orders.

Further west, pent up demand and less competition has positively impacted mill order books on the West Coast-just four days after opening March order books on January 10, California Steel Industries (CSI) began informing customers that March deliveries were booked, and the company has not yet opened books for April.

Looking at the market as a whole, it appears that both steelmakers and end-users are faring better so far this year than they had been in much of Q3 and Q4 2010, as housing starts are gradually increasing and the unemployment rate fell 0.4 percent last month, making market players hopeful that the economy and the steel market are shifting in a more positive direction, and higher prices could sustain into late Spring. And with the majority of hedge buying now over, current order books will begin to reflect actual demand, which will give both steel buyers and sellers a better grasp on where demand levels really are, and  where prices will be three, four, even five months from now.

Offshore, uncertainty over coking coal supplies from Australia is affecting steelmaking operations and offers to the US of coated products. Taiwanese offers of HDG and Galvalume to the US expired over the last few days, and new offers are expected to be dramatically higher than previous ones. Chinese mills however, are offering both HDG coated products as well as Galvalume at competitive prices that are attracting interest from US buyers. The Chinese offers are expected to be booked out in the not-so-distant future, and whether or not Chinese mills continue to offer product to US buyers will depend on whether they can quickly find a replacement source for their coke needs.