US flat rolled market continues steady price run-up, but fears of Q4 correction may be valid

After several domestic mills announced price hikes in the last week, US domestic flat rolled spot prices have moved up an average of $2.00 cwt. ($44/mt or $40/nt) across the board within last week, with most mills now quoting for November shipment.

After ArcelorMittal USA announced it would raise flat rolled spot prices by $60/nt ($66/mt or $3.00 cwt.) across all product lines, other US flat rolled producers soon followed. Severstal NA issued its own $60/nt increase, while Nucor Sheet Mill and California Steel Industries quickly suspended order acceptance for October. AK Steel then announced it would raise flat rolled prices by $40/nt to $60/nt ($44/mt to $66/mt or $2.00 cwt. to $3.00 cwt.), depending on product, and Nucor finally, on the second of the month, issued a $40/nt, across-the-board, minimum increase for all flat rolled products, citing "improved demand for our sheet products, strengthening forecasts from our customer base, and better economic conditions."  The announcements were all effective immediately and generally applicable to late October/early November shipments.

The market is still digesting these hikes and it is still too soon to say where spot prices will ultimately settle in at. That said, it has been observed that most domestic flat rolled spot offers have moved up by an average of $2.00 cwt. since last week. Domestic Midwest spot offers for hot rolled coil (HRC) now mostly range from approximately $28.00 cwt. to $29.00 cwt. ($617/mt to $639/mt or $560/nt to $580/nt); cold rolled coil (CRC) offers range from $33.00 cwt. to $34.00 cwt. ($728/mt to $750/mt or $660/nt to $680/nt); and hot dipped galvanized (HDG) base prices range from about $35.00 cwt. to $36.00 cwt. ($772/mt to $794/mt or $700/nt to $720/nt). Above ranges are ex-mill, Midwest, and up $2.00 cwt. since last week's ranges. These offers are also $1.00 cwt. to $2.00 cwt. ($22/mt to $44/mt or $20/nt to $40/nt) shy of mills' latest announced increases, but at present it appears highly likely that the full increases will be accepted by the market. Therefore, the pricing trend for the domestic flat rolled market is still pointing in an upward direction.

The US flat rolled market generally seems poised to retain its tightness through at least the next month or so, as automotive producers remain busy building cars on order from the highly successful "cash for clunkers" incentive program. However, there are worries that prices have increased too much, too fast, as it not yet apparent whether the "clunkers"-driven automotive up-tick will be sustainable. Furthermore, with domestic steel production inching up on a weekly basis, there will also be more supplies entering the market. The market is now in "re-stocking mode", but once service centers and customers have replenished supplies to their satisfaction, the market could potentially see some correction in the fourth quarter if demand starts to cool again.

Despite the uncertainty about the duration of the current demand up-tick, one strong advantage that US flat rolled producers have in their corner is the lack of import competition. However, this dynamic could potentially change as well as China's flat rolled market is weakening and producers may become more anxious to export. The other Asian markets remain relatively strong, but if Chinese prices continue to fall then other Asian flat rolled producers may not be able to maintain their strength much longer. Still, for now, most flat rolled import offers to the US are not competitive with domestic offers, even when factoring in domestic mills' full October/November price hikes.

At present, the import market is still very quiet as offshore mills are waiting for US domestic prices to continue rising. The only offer heard recently was for HRC from Russia, which priced out at about $30.00 cwt. ($662/mt or $600/nt) duty-paid, FOB loaded truck in US Gulf ports. Still this offer would generally only be workable for importers of niche items in the Gulf area, who would be able to save a few dollars in freight by not having to pay the cost to ship domestic material from the Midwest.

Though flat rolled import arrival volumes are, on the whole, very low compared to recent years, US producers are no doubt keeping an eye on import totals, which inched up for some products in July and August. HRC imports rose from 81,421 mt in July (based on preliminary census data) to 126,452 mt in August (based on license data), led by a strong increase in tonnage from Korea. Keep in mind though that this could very well be an increase of tons purchased by USS-POSCO from their Korean parent to process as substrate. However, CRC tons also rose, from 39,493 mt in July, to 61,115 mt in August, led by a robust up-tick in Brazilian tonnage. HDG was the only sheet product which saw import tons fall in August, to 47,491 mt from 61,079 mt in July, largely due to a significant drop in Indian imports.