After several months of stagnation, domestic flat rolled prices have registered a total increase of $20 /nt since mid-September. But what's next? Is the increase indicative of a new trend, or is it merely an exception to the rule?
The answer most likely lies somewhere in the middle; the general consensus in the market is that prices are trending back up, but the "volcanic" autumn recovery that some more bullish analysts had expected is not becoming a reality.
A buyer in Houston told SteelOrbis this week, "For the rest of the year, I expect prices to come up, but only about another $20 /nt. If we were foreseeing a lot of demand, we'd expect a steady increase in prices, but right now demand is just steady."
As we approach the end of the year, it's unlikely that demand will pick up enough to warrant another price increase. But as inventories continue to shrink due to the lack of imports and controlled domestic production, the domestic flat rolled market will eventually react to the tight supplies, and prices will rise. However, at this point, it doesn't look like this will happen until at least the end of the fourth quarter. The more optimistic projections now are for a spring recovery.
Currently, most offers for hot rolled coils range from $25.50 cwt. to $27.50 cwt. ($510 /nt to $550 /nt) and most offers for cold rolled coils range from $29.00 cwt to $30.00 cwt. ($580 /nt to $600 /nt), based on ex-works prices in the Midwest.
Imports range at least $40 to $50 /nt above this range, which with the current demand situation is keeping virtually all imports out except for import deals that were pre-arranged with yearly contracts. With the other world flat markets still going strong, the much higher import prices should ultimately help pull up the domestic market since during normal market conditions, domestic flat rolled capacity does not fully meet demand. Buyers will eventually have to start purchasing imports again in order to meet their customers' needs.
Data from the US Import Administration show that HRC imports in September 2007 totaled 195,386 mt, compared to 360, 416 mt imported in September 2006. CRC imports in September totaled 70,835 mt, compared to 237,368 mt imported in September 2006.
Domestic offers on the West Coast are approximately $60 to $70 /nt above the Midwest range as West Coast producers like USS-POSCO and CSI have to transport or buy expensive slabs. Also, there is some talk that the hot rolled market is starting to come back on the West Coast, with mills reporting an increase in orders.
A West Coast trader told SteelOrbis this week that while he hasn't seen a market recovery yet, "It's a matter of when, not if, things turn around. And since inventories at service center and end-user level are low, when things start to turn around, it could be quickly."
On the demand side, while residential construction remains weak, and automotive is not in that great a shape either, the tentative labor contract recently signed by General Motors and United Auto Workers, expected to be ratified by the union this week, is considered to be a major win on the side of the domestic steel industry -- a strike that would have slowed automotive production significantly was only narrowly avoided. The US automotive industry isn't entirely in the clear, however. The expiration dates of labor contracts for two Chrysler plants in Ohio are looming, and if a deal isn't reached soon, a strike could occur which would disrupt production.