Last week, US flat rolled steel mills announced an increase in HRC, CRC and HDG coil prices by $2.00 cwt. ($44/mt or $40/nt), effective immediately. As noted in our last report, sources were immediately skeptical as buying activity hasn’t been great, lead times are short, and supply seems to be outpacing demand.
Additionally, mill capacity utilization rate keeps rising; on Monday, AISI reported that for the week ending July 25, the capacity utilization rate had risen to 58.9%, against 58.3% one week prior.
“We all thought that if mills brought back production at a pace that was in line with demand from the automotive sector, prices would rise slowly into the end of the year,” a source said. “That’s clearly not happening. Mills need to be less proactive in terms of bringing back capacity and more reactive to what’s happening within the market.”
Of all the challenges the US domestic steel market is currently facing, sources say the primary hindrances continue to be the economy, the unemployment rate, and continued upticks in coronavirus infection rates.
For example, yesterday, it was reported that the US gross domestic product plunged by an astonishing 32.9% in Q2 2020 compared to the prior year. Although a severe retraction was expected, as many parts of the US were under stay-at-home orders through mid-May, sources say the number is still shocking.
Meanwhile, the US unemployment remains above 11% and the nationwide eviction moratorium is about to expire, which could lead to widespread evictions. As such, consumer confidence is weak and demand for manufactured goods is at an all-time low.
In terms of how the situation is impacting the current flat rolled steel prices, US HRC has softened in the past week, from $22-$23 cwt. ($485-$507/mt or $440-$460/nt), ex-mill, to $21-$23 cwt. ($463-$507/mt or $420-$460/nt). Lead times are trending at 2-3 weeks.
What’s interesting, sources note, is that US prices are now below Chinese HRC futures prices. Earlier this week, SteelOrbis reported that as of July 28, Chinese HRC futures at the Shanghai Futures Exchange were recorded at $24.31 cwt. ($536/mt or $486/nt.) At current, it’s believed that a “best case scenario” for US HRC would bring prices to $25 cwt. ($551/mt or $500/nt) by the end of the year.
US CRC spot prices, on the other hand, have remained stable, at $30-$32 cwt. ($661-$705/mt or $600-$640/nt), ex-mill. However, deals up to $1.00 cwt. ($22/mt or $20/nt) below that range have been heard in the marketplace based on tonnage.
“The only thing that’s going to end this cycle is an end to the pandemic,” another source said.