US HRC prices have become increasingly flexible in the past seven days, as soft scrap prices, slightly higher mill capacity utilization rates and concerns about a possible second COVID-19 shelter in place order are taking a toll on the market.
“Right now, if you look at the market, you could make the argument that [hot rolled] prices will rise between now and the end of the year, on a slope that’s about as steep as a wheelchair ramp,” a source said. “Unfortunately, there are a lot of other factors that need to be accounted for, and each one has the possibility to derail the possibility of higher prices.”
First and foremost, the US never got past its first COVID-19 wave. States such as Texas, Arizona and Florida continue to hit new daily records in terms of test-positive rates and hospitalizations. In some parts of the country, such as Phoenix, Arizona, the test-positive rate have is near 25%, and Phoenix is not alone. The situation has become so bad in some places that the nation’s top infectious disease expert has recommended that some states “should seriously look at shutting down.”
(On Friday evening, several hours after publication of this report, the mayor of Atlanta, GA announced plans to return the city to Phase 1 shelter-in-place restrictions. Georgia, which was among the first states to reopen, has been experiencing a surge in COVID-19 cases. A return to Phase 1 means that residents are being asked to remain at home outside of essential trips.)
A second variable relates to potential ramifications from outbreaks in steel or automotive plants.
“If an outbreak happens at a sheet mill and they need to go offline for a couple weeks, that’s going to push prices higher,” as source said. “On the other hand, if an outbreak at an automotive plant leads to a shutdown, like what’s being talked about for GM’s plant in Arlington, Texas, that has the potential to push prices down.”
Currently, the United Auto Workers Union has asked GM to halt production at the plant due to a spike in confirmed cases. A similar outbreak has been reported at a plant in Wentzville, Missouri.
A third factor ties into slowly climbing mill capacity utilization rates. If automotive sales hold steady (as opposed sliding back down, as some have expressed concern that recent spikes in auto sales are tied to temporary, pent-up demand), and mills don’t ramp up production beyond what’s needed to fulfill increased demand from the automotive sector, this could bode well for pricing, especially if demand from other manufacturing sectors continues to improve.
On the other hand, if cap utilization rates climb too quickly, and steel supply outpaces demand, it could throw a wrench in pricing, sources say.
For now, prices for US HRC are a bit softer than they were a week ago, a trend that’s linked to unexciting order activity, shortening lead times and soft July scrap prices. In the current week, the spot market price range for US HRC has widened by $1.00 cwt. ($22/mt or $20/nt) on the bottom end. Current US HRC spot market prices are now trending at $22-$24 cwt. ($485-$529/mt or $440-$480/nt), ex-mill.
CRC prices, however, are faring slightly better, as lead times for cold rolled have expanded “by about a week." As such, this week's CRC prices have firmed by $1.00 cwt, with the new range trending between $32-$34 cwt. ($705-$750/mt or $640-$680/nt), ex-mill.
Current capacity utilization rates are at 56.6%, which reflects a modest uptick from the last week in June, when cap rates were reported at 55.4%.