Steel Products Prices North America

Steel Traders Say Flat Rolled Imports to Drop 25% to 50%

November 13, 2016

Steel trading companies are advising Steel Market Update that we should expect imports of foreign steel to be much lower as we move into the New Year. There are three major reasons for the slowdown in foreign orders: 1) the antidumping (AD) and countervailing (CVD) results fell in favor of the domestic steel mills, thus either eliminating or slowing imports from a number of countries hit by affirmative dumping duties. 2) The second reason according to steel traders is many steel buyers expected domestic steel prices to drop through the end of the year thus slowing their interest in foreign steel with its longer lead times. 3) The third reason is we are seeing a run up in prices in China, Europe and elsewhere. Higher foreign prices shrinks the spread between foreign and domestic and, at this point, some items are actually more expensive to buy foreign than domestic.

Here is how one trader described the situation to SMU on Friday, “Most of the buyers were very nervous until the last price increase announcement. They expected prices to keep on going down thru the end of the year. In the meantime the steel market in Asia, CIS and Europe went on fire. Prices are still going up. HRC prices in the EU are reaching Euro 480 to 500, in Turkey $500/mt, CIS $450/mt FOB etc., same for CRC and HDG. We should see a dramatic drop of flat rolled imports in Q1 2017. Few orders were booked for January shipments and now foreign mills are quoting March shipment for CRC and HDG.”

This trader then went on to say, “HRC: Turkey and Netherlands are the main potential for HRC if we keep Canada and Mexico aside. Turkish mills are not competitive right now and shipments from the Netherlands will probably drop. CRC and HDG: There are still some Vietnamese shipments in the pipe line until early December. Taiwan, Thailand , Russia ,South Africa, etc. can still ship [but] the total import quantities will be greatly reduced.”

We asked all of the trading companies with whom we communicated with on Friday where do they think import tons will be on flat rolled in the coming months compared to what we saw six months ago? With a couple of exceptions the trading companies pegged foreign imports going into 2017 as down by 25 percent to as much as 50 percent. The exceptions were those traders who represent countries (like Mexico) that are not being hit with AD/CVD orders; their business remains steady to slightly higher as they pick up a small portion of the tonnage being lost by those countries who are affected by dumping orders.

Another large trader told us, “You bet they have slowed down. In fact, they almost have stopped altogether. Reasons? Uncertainty by US buyers, price increases for downstream products globally following coke and HBI trend, Circumvention allegations, etc.” He felt imports will be down 50 percent compared to six months ago. “Incoming tons for flat products will be significant. CRC/HDG ex Vietnam will stop for the time being, Turkey has priced itself out of the market unless there are further US domestic price hikes, CRC ex Russia may pick up some of the shortfall.”

We spoke about Vietnamese steel as this trader (like many) was an importer of the VN products. In this traders opinion, “They [Vietnam] will wait until the dust settles on the circumvention investigation regardless of the origin of substrate. If Commerce finds no injury, Vietnam will continue with Chinese substrate and a trade action will most likely be the consequence. If circumvention is confirmed, Japan / Korea / India are obvious choices for HRC substrate. Strangely – those countries [are on the list for having] dumped HRC into the US.”

He also told us that end users appear to have covered their 1st Quarter 2017 needs. Service centers, on the other hand, are putting out a lot of RFQ’s (request for quotes) but 1st Quarter foreign tons appear to be fully committed.

A trader known for light gauge galvanized told SMU that imports have slowed which has the potential to significantly impact the U.S. steel buyers in the not too distant future, We were told, “I am very worried that supply for value added items is getting scarce and there will be a huge price increase soon.” He went on to say, “I would say 25% min down and with the Vietnam data will show that number going closer to 50%.”

Sourcing is an issue when looking at who will replace the Vietnamese (Chinese/India) light gauge tonnage, “I think the tons will shrink since there are fewer places left to bring import from. Coated will be affected the most (it is what I tend to know the best), value added painted and light gauge items are very, very difficult to replace. Just because a country/mill can ship to USA it might not be able to consistently provide the value added items.”

Another trading company provided an example of the risks being taken by traders and their customers by using unproven sources of supply. One trader specializing in the Middle East and Eastern Europe told us, “There is a lot of interest for galvanized and there are not many origins being offered. Turkey and Egypt are two. Turkey has good quality but they need to get closer on price [not competitive right now]. Traders have orders on with Egypt and the mill there does not make suitable quality for the U.S. market.” He went on to say there will be some problems with the Egyptian material.

The same trader pointed at another trading company that recently took 10,000 tons of orders from a mill in South Africa which then had to be cancelled because the mill was not capable of producing the qualities requested on 75 percent of the material. The 10,000 tons suppose to go to the Gulf were cancelled and now those buyers are scrambling because the Mexican tonnage is spoken for.

This trader put Turkish hot rolled as well as tonnage coming out of Europe as being $500 per metric ton or higher ($551 per net ton FOB Turkey/Europe).

A large international trading company told us, “We could be in for a bit of a jolt here in the United States.” He pointed out to us, “We live in an increasingly protectionist environment. The U.S. has been living with protectionism for a very long time, only not as intense as it is today. Now protectionism is proliferating around the globe, Far East, South America, Europe, it’s around the globe.”

When speaking about what steel is able to be sourced for the U.S. market he told us, “We are scraping the bottom of the barrel. Many of the mills are not qualified from a quality perspective.” Add to that the higher prices in China and around the world and it is obvious there will be less steel shipped here as we move into calendar year 2017.”

Another trader reflecting on the recent election here in the United States, “Trump = higher steel prices, traders are running out of options, but that hadn’t slowed buyers’ search for alternatives.”