Steel-Insight H2 2016 and 2017 US Flat-Rolled Steel Market Price Outlook

• July 12, 2016

U.S. flat-rolled steel prices appear to abhor a vacuum — they seem to either go up or down.

Moves this month, therefore, have to be perceived as efforts to hold pricing, even though they are pitched as price increases. For now, the moves appear to have worked; hot-rolled coil is steady at $620 a short ton out of minimills and $640/st from integrated mills with cold-rolled coil at $820-840/st.

Amid lower scrap prices, the minimills certainly have room to negotiate. Meanwhile, buying tends to slow over the summer. Import deals are also firming up given the spread. As such, it is our view that the bias is to the downside, but discounting — at least initially — will be limited. Hot-rolled coil lead times remain at around six weeks, although some minimills are closer to four to five weeks. Cold-rolled coil and hot-dipped galvanized remain in the eight to 10 week range — down from their peak, but not long enough to allow distributors much leeway in negotiation. Moreover, with some mills having downtime in August, there is no incentive to cut prices to fill schedules.

US Hot-Rolled Coil Prices ($/metric ton ex-works Midwest) Margins Widen

Source: Steel-Insight

Falling scrap prices and high steel prices are leading to rising spreads for minimills, a further reason to maximize output. Slab re-rollers are still seeing their spreads widening as well. At around $350/mt free-on-board Black Sea, the spread to U.S. domestic steel is around $300/mt over landed slab, an enormously profitable spread. It is, perhaps, no wonder that provisional semi imports in May were over 700,000 mt. We would expect them to move higher as buyers take advantage of the arbitrage. However, we caution that this could be another contributory reason for U.S. prices to drop later in the year as rising supply of coil hits the market.

Import Margins

In fact, import margins generally are widening. In CRC and HDG, imports are being offered from around $600/mt cfr, although the bulk of suppliers are looking to get $650/mt cost-and-freight and above. That is still more than $200/mt below domestic prices and is finding some willing buyers. That includes plentiful supply from suppliers that were not named in the recent anti-dumping actions such as Brazil and Vietnam as well as from South Africa and a return by Taiwanese suppliers that got low coated steel dumping margins.

So, What Does This Mean for Prices?

Rising domestic output and rising imports can only mean one thing in the longer term: lower prices. When will that come? Well, those imports won’t land until Q4 and it takes a while for integrated mills to ramp up. However, once they are up and running and imports start landing, it takes some time to switch them off.

So our best guess is that prices will hold through the summer and then dip slightly in Q4, with HRC staying in the high $500s per st. Demand should be fairly good through the first half of 2017 but inventory will start to accumulate. As such, we see prices beginning to accelerate downwards by mid-2017 and will overshoot as buyers exit the market. This time next year, we expect to see HRC prices starting with a three or, at the very least, a low four.

Steel-Insight is a steel industry price-forecasting publishing company, based in Toronto. James May, the firm’s managing director, has been a steel industry analyst for 15 years and advises some of the major global steel trading companies, steel producers and steel consumers on the outlook for steel pricing and industry trends. For more information, visit www.steel-insight.com.